Oral statement to Parliament

Universities UK Annual Conference

We’ve just heard an eloquent case for universities. Steve, as always, you marshalled your evidence effectively and spoke on behalf of the whole…

We’ve just heard an eloquent case for universities. Steve, as always, you marshalled your evidence effectively and spoke on behalf of the whole sector. All of us who care about higher education owe a debt to you and Nicola Dandridge and the whole team at UUK for the excellent work you do.

You are absolutely right about the crucial role of universities in our economy. And their contribution extends far beyond economic growth. Universities transform lives for the better, especially of young people. They are a force for good. They help people appreciate what Matthew Arnold called “the best that has been thought and said in the world”. For many young people, going to university is their route to adulthood and a different, better life. One of the great privileges of my job is visiting universities - those notice boards with posters for visiting lecturers, sports competitions, new bands or chamber concerts are a kind of vision of the ideal community.

I was of course visiting universities for years as part of my role in the Shadow Cabinet. And I have addressed this conference before as the Opposition spokesman. But this time it is different. There are new and heavier responsibilities on my shoulders. And they are all the more serious because of the challenges facing the sector. I want to describe them frankly to you, though you will understand that I cannot today set out the final decisions the Coalition Government will reach. We have to wait for Lord Browne’s review and for the conclusion of the Comprehensive Spending Review - rather a lot to wait for. But I can today share with you the thinking of Vince and myself as we approach these difficult decisions together.

I can also assure you that at every meeting and discussion on these difficult issues I try to draw on the wisdom of the many people I have met or corresponded with in higher education. There is much to learn from points that have been made to me in student unions or in vice chancellors’ offices as well as from the different mission groups who each have their distinctive expertise.

Many parts of HE work well. We do not wish to disrupt them. It will not be change just for the sake of change, or just to be different from the previous government. Look at some of the institutions that already serve the sector as a whole.

First UCAS. It has faced unprecedented challenges this year, with another big increase in the number of applications. Individual applicants have had all the stresses and strains of desperately competing for a university place but at least these have not been exacerbated by the failure of UCAS as a system. It belongs to all the universities and you can be proud of the service it delivers. Here are the latest figures: 463,000 have accepted a place, 11,000 more than at this stage last year. 38,000 students found a place through clearing. Although going to university is a competitive process, we will have more students at university this year than ever before.

But there are new challenges for UCAS in the future. At the moment part-time students are not part of this system. Can we do more to incorporate them? Can we do more with the data UCAS has on student choices - especially if we could link it with school data records? Then we would be able to track the routes that people take through the education system and identify, for example, the young people who are not going on to the type of universities they could be aiming for and give them better advice. I am particularly keen to do everything possible to identify and encourage the so-called “missing” 3,000 teenagers who get good qualifications, often from poorly performing schools, but do not go on to our most competitive universities. Encouraging them would be a great way to boost social mobility - and by using school and UCAS data we might be able to.

The Student Loans Company is another institution serving the sector as a whole. Its performance last year was unacceptable. Many thousands of students started university a year ago in real distress because of the appalling service they received. Coming in as a new minister and consulting with stakeholders, I concluded that a change in leadership at the top was necessary. This year, the Loans Company’s performance has been much better. There are still problems, but the management has turned things around. Figures out today show that 682,000 applications (75% of the total submitted) have been prepared for payment. 191,000 applications (21% of the total submitted) are still waiting for students or their parents to send in further evidence, or return their signed acceptance form. So there is still more to do, but they are on track.

Nor should we forget other institutions that play their part, notably HEFCE under the experienced and skilful leadership of Alan Langlands.

Steve’s speech set out the economic case for universities. The mantle of Beaverbrook fell on his shoulders as he argued that cutting universities would be like cutting spitfires during the Blitz. But you know that the backdrop we face today is not a military crisis but a fiscal one. And it has to be fought with vigour.

Whichever party had won the last Election there would have been cuts. Indeed the last Government left us with £600 million of cuts in universities and research, with precious little detail on how to deliver them. So yes cuts are coming. And - yes - sadly there will be some pain. But if we are smart and courageous and work together we can emerge with a stronger and better sector.

Let me take you through the thought process Vince and I have gone through over the past few months. There are three main options which form an iron triangle that is the framework for our funding decisions: either cut the unit of resource per student, or reduce the number of students going to university, or expect graduates to pay a greater contribution to their education once they are earning. Let’s examine each in turn.

Efficiency savings

The first option is to reduce the unit of public spending per student. My party is associated with big reductions in resource per student as student numbers expanded in the early 1990s. It is still remembered as a time when investment in the resources needed to educate students properly was cut back too much. No one wishes to go through that again. But we must look at using public money that goes to universities with the greatest possible efficiency.

For example, it really has taken too long to get to grips with the cost of pensions. It is a classic example of a problem swept under the carpet in the years of plenty which we now have to tackle. In the past, you may have felt isolated as you tried to get the finances of university pensions on an even keel. But now the challenge is being grasped right across the public and private sectors. University staff do need to make a fair contribution to the cost of the pensions they are promised. Neither taxpayers nor students and their families should be expected to pay for the cost of pensions far more generous than most of them will enjoy themselves.

Another example is increased sharing of back-office services. Too many universities try to do too much in-house. Again I recognise that this is not all the fault of universities themselves. There is a real problem with the VAT regime which imposes extra costs on the sharing of services. It would be great to resolve this, but we cannot bank on it. So, meanwhile, we are going to have to be smart at finding ways around the problem and that is beginning to happen. The shared services pilot should increase sharing of services and contracting out of work despite the VAT problem.

UPP have explained to me how universities might outsource provision of non-core services without creating a new VAT liability. They have proposed the establishment of joint ventures between universities and private service providers. The universities would have a majority stake and the joint venture would therefore be in the same VAT group - another idea worth exploring.

One service in particular lends itself to savings by sharing - procurement. Collectively, universities spend around £9 billion annually on non-pay costs, including procuring goods and services. They can save on that by acting in concert. I welcome HEFCE’s recent proposals here, and urge universities to consider entering e-market places like Zanzibar or - for more specific services - Science Warehouse. The potential savings are very large indeed.

There are other ways of cutting overhead costs. In 2009 the number of senior university managers rose by 6% to 14,250, while the number of university professors fell by 4% to 15,530. On that trend the number of senior managers could have overtaken the number of professors this year. I recognise that universities now are big, complex institutions with revenues from many sources which need to be professionally managed. But we owe it to the taxpayer and the student to hold down these costs - we are now in a different and much more austere world. Again, we are not going to shirk our share of responsibility for tackling this. We will to do away with unnecessary burdens upon you that require the recruitment of more administrators. Do tell me - and HEFCE, of course - of any information requirement or regulation which you believe comes at a disproportionate cost. They have to go: we cannot afford them.

So this is the moment to be thinking even more creatively about cost cutting. I congratulate you on your initiative in inviting Ian Diamond to chair a UUK group on efficiency savings. You are right to get to grips with this. We can work with you on this agenda without getting sucked in to micromanaging our universities. No returning to a time - a century ago, actually - when one vice chancellor reacted to a Board of Education demand for figures on staff teaching hours by complaining that “Nothing so ungentlemanly has been done by the Government since they actually insisted on knowing what time Foreign Office clerks arrive at Whitehall.”

Student numbers

The second option is to cut student numbers. But we must not forget the many thousands of young people who aspire to go but cannot find a place.

Arbitrary participation targets have been a distraction from what matters, which is making sure that applicants can get to the institution that’s best suited for them, irrespective of their background. But it is also clear from OECD evidence, that there is a strong international trend for more people to go to university. Average OECD net entry rates increased from 40% in 2000 to 57% in 2008, with the UK’s rates increasing from 48% to 57% in the same period. So every country that has submitted data between 1995 (when this data was first collected) and 2008 has increased their net entry rates over this period. We’ve clearly got a strong international trend here of more young people going to university.

What matters is that - as well as the choice to attend university - people have other choices too. On A-level results day at UCAS, I listened to young people who had phoned in, fearful that their life chances had been wrecked because they hadn’t got a place at university. But they need to be confident that there are other options as well. We cannot have a society where university is the only route to a well-paid job and a career. That is bad for social mobility. We are committed to ensuring young people have a wider range of options to choose from: apprenticeships; places at FE college; part-time study; online learning; an ordinary degree first, and then honours - and not necessarily at 18 either. The bottom line is more options and better advice.

I am committed to improving the information available to prospective students and their parents. Recently published research, commissioned by HEFCE, has identified information that students say they want, and a consultation - in the Autumn - will figure out how best to make that information available. It is in everyone’s interest that students make well-informed decisions about what and where to study. Most young people say they do not regret their decision to go to university. Over a quarter of them say they do wish they had chosen a different course. This tells me that, once again, we need to do better on careers advice and information.

Graduates paying more

One argument for cutting student numbers is that the graduate premium has fallen and that this is evidence of a big increase in the number of students relative to demand. But Aditya Chakrabortty was wrong in the Guardian the other day when he claimed that the premium has fallen from £400,000 to £100,000.

The graduate premium is an indication of how much more someone with a degree earns over their lifetime, on average, compared with someone who finishes their education with two or more A-levels (i.e. with university entrance qualifications).

The latest estimates are based on an improved methodology that takes account of tax, future earnings growth, and other factors. The premium is only an average and not a perfect measure, but it is a good measure. There was an early calculation of the lifetime earnings benefit to having a degree (about ten years ago, within the then DfEE) which produced an estimate of around £400,000, and this figure did gain some coverage at the time. However, this was not using the methodology I have outlined. The £400,000 to £100,000 claim is therefore factually wrong, as it is not comparing like with like.

In fact, both government-commissioned and external studies have consistently found that, over his or her working life, the average graduate will earn comfortably over £100,000 more in today’s valuation, net of tax, than a similar individual who achieved university entrance qualifications but did not go into HE. And they have shown that the premium has held up in spite of the recession.

It is not just an economic premium. Graduates, are - on average - more healthy, more active in the community and more likely to be engaged in the education of their children. The graduate premium evidence further suggests that it is not unreasonable to expect graduates to make more of a contribution themselves - opening up the third option on my list.

Once again, I’m not going to pre-empt Browne. You all know that he is looking at a range of possibilities in terms of graduate contributions. But I do believe that it is better for the younger generation to have the chance of going to university and then pay for out of the higher earnings they achieve later on - rather than experiencing poorer-quality HE or being deprived of the opportunity altogether. This has to make sense for young people.

What would not make sense would be to fail to increase the contribution from graduates, with the result that then we jeopardised the student experience or ended up having to make big cuts in student numbers. That would be to let our young people down.

Getting through the process

So we start to see the road ahead. We do need efficiency savings - doing more for less. We do need to provide alternatives to university for those young people who aren’t cut out for that route. And we can expect graduates to contribute more.

The challenge is to deliver all this. Steve fears what he has called a “valley of death”, inviting us perhaps to imagine vice chancellors as the heroic cavalry in Tennyson’s “Charge of the Light Brigade”: Cuts to the left of them, cuts to the right of them - into the valley of death charge the senior common room!

I understand why he warns of risks. But Vince and I are not going to abandon the careful and deliberative approach of the past few months.

Let me share with you my thinking on how the process might work. John Browne has already said that he will report before the Spending Review, which falls on October 20th. That will announce decisions about departmental budgets, which will have funding implications for higher education, and we will probably have to move promptly on these. But funding is not the only issue to be resolved. The framework created by the Further and Higher Education Act 1992 will need re-examining: on the position of non-publicly funded HE providers; the demarcation lines between FE and HE; on the role and powers of HEFCE, and other issues where the world looks very different from how it did 15 years ago.

These big questions will require thorough debate and consultation, with detailed government proposals to which experts from the sector can react - as it has done via the Browne process. We intend therefore to publish an HE White Paper, leading - we hope - to a Higher Education Bill in Autumn 2011.
Subject to parliamentary time, we will legislate to allow the implementation of reforms from the start of the academic year 2012/13. Implementation of reforms should start in the 2012/13 academic year. So be assured that we will not drive through hastily-conceived policies or tear down effective existing structures where they work well.

Stronger universities

I expressed my belief earlier that we can end up with a better sector and with stronger universities. It is always hard to look beyond immediate funding issues but I do believe we can achieve this - together. What might that better model look like?

Fundamental to our vision is a renewed emphasis on teaching. Nothing matters more than passing on knowledge and sceptical understanding from one generation to the next. The Higher Education Academy has produced one of the most shocking reports I have come across recently. It is a survey of what gets you promoted as a university lecturer. Most of the academics felt that teaching is not rewarded in promotions as much as it should be. Fewer than one in ten senior promotions in the Russell Group and the 1994 Group were significantly influenced by teaching. Another recent survey showed that academics perceived research as most important for promotion - while teaching was barely on a par with administrative diligence.

Universities that relegate the importance of teaching are in danger of losing sight of their original mission. Let’s go back to John Henry Newman; after all, he’s expected to be beatified very soon. We’d do well to recall his Idea of a University. In the very first paragraph he declares that a university “is a place of teaching universal knowledge. This implies that its object is “the diffusion and extension of knowledge, rather than the advancement. If its object were scientific and philosophical discovery, I do not see why a University should have students”. Now, Newman’s is clearly not the last word on the role of universities, but it is a useful reminder of how far ideas have moved on.

The balance between teaching and research has gone wrong. This is not because universities have suddenly made some terrible mistake. Theirs is a rational response to incentives created by successive governments. We have strengthened the incentives for everyone to carry out research with no change in the regime for teaching. It should be a source of pride for an institution to be an excellent teaching university. That is what most students rightly see as the backbone of their university experience.

I know this is something that people do care about, and that good work is going on. For example, Janet Beer and Aaron Porter are jointly chairing a group who are developing guidance for university and higher education college charters. I have asked HEFCE to give the group all available support.

But it remains hard to shift the impression that what really counts in higher education is research. This needs to change.

If course, there is nothing to stop universities from granting professorships on the strength of excellent teaching; some already do. Nor is there any obstacle to institutions rewarding good teaching in their pay and career progression frameworks. We’ve just got to do it. You can think as well about more widespread online publication of students’ evaluations of teaching.

Another way of empowering students and transforming the incentives to focus on teaching is by new institutions entering the sector which are devoted to teaching. There is nothing intrinsically better - or worse - about being a so-called private HEI. Indeed, every institution represented in this room is, in one sense, private. The UK has no “public universities” of the sort that exist in many countries, particularly in continental Europe. The government does not own any universities; it does not set pay, specify subjects to be taught, or appoint staff.

Nevertheless, as a country, we have historically been nervous about HE institutions operating for profit. Decisions taken decades ago, by both government and universities, have meant that the higher education scene in the UK is dominated by institutions that get a significant part of their income from government grants, via funding councils. In exchange, they sign up to various conditions, mainly relating to checks on quality, financial assurance and the like. It is, in the traditional British way, an informal regulatory framework resting on the power over grants. Much of it you would struggle to find set down in the 1992 Further and Higher Education Act.

But, as we all know, the world is changing. Internationally, for-profit higher education providers are becoming more significant. They are a natural response to the global hunger for higher education and better qualifications. Unencumbered by the weight of history, these providers can grow quickly and change fast. They offer a salutary challenge and new approaches to delivering higher education efficiently - and, in turn, cheaply for students. They may have ideas to contribute on student-centred teaching that everyone can learn from. That is, of course, one reason why some institutions are already in partnership with such providers for particular ventures - especially those aimed at specialist professionals, such as business schools. I hope UUK will consider whether your own membership should be extended to cover private providers as well.

The acid test for HE providers is whether they offer excellent teaching and a high-quality experience for students. If they can do that, at a fair price, then it doesn’t matter whether they are old universities or new ones; for profit or not for profit. They have something to contribute and should have the chance to do so. That is the case for a more open market.

One way to open up the market - as I’ve argued previously - is for teaching institutions to set up and offer degrees set externally by the likes of the University of London. This supposedly radical model is actually how all English universities were created for a century from the 1850s to the 1950s. There are vice chancellors in this room whose universities received their own degree awarding powers within living memory. I am not trying to take them away, but I do believe that the alternative model of teaching to an externally-set degree deserves another chance. I have asked the QAA to look at any barriers or implicit assumptions within the quality regime that tie Higher Education to a model that requires institutions to award their own degrees. Any such assumption should go.

Very large numbers of students will want the traditional university model what it offers. Fortunately, in a world where demand for higher education is growing, there is room for different models.

Research

Having stressed the importance of teaching, we must not overlook research. A strong research base is vital for our future in a global knowledge economy - as Vince set out yesterday: strong in both fundamental, curiosity-driven research and research applied to the challenges facing businesses and public services. Science and research are the life blood of many sectors essential to growth and a rebalanced economy.

We are fortunate that the UK remains first or second in the world at research in many disciplines, despite growing international competition.

The primary objective of public funding must be research excellence and international competitiveness. We will back outstanding individuals, but we also appreciate - and will take into account - the benefits of critical mass and multi-disciplinary capacity.

Public funding for university research will continue to be delivered through independent arms-length bodies - including the national academies which support outstanding individual scholars - and distributed on the basis of excellence determined by expert peer review and assessment. Both sides of the dual support system are already highly selective on the basis of research excellence, and non-government funders of research - such as global businesses and charities - are just as sensitive to quality. These policies create the environment for a high-performing research base.

In a more constrained funding environment with international competition (and collaboration) growing, it is clear that we will need to focus on sustaining the national capability for the very best research. Such research not only pushes back the frontiers of knowledge but supports growth in the economy by boosting the performance of business, producing highly skilled people, improving public services and policy making, and by attracting R&D investment from global business.

This may well mean higher concentration of public funding for research than we have had to date, albeit confirming the direction of travel over recent years. Greater selectivity means that not every academic, department or institution can necessarily continue to expect public funding for research. HEIs, as autonomous institutions, should establish what is their core mission and the areas where they can make the most difference. But I am well aware that the research ecosystem is complex and that the devil will be in the detail. BIS will work closely with HEFCE on this and, together, we will be intelligent about how to go about achieving it.

I also recognise the diversity of ways in which HEIs contribute to growth and wellbeing through knowledge transfer and exchange: improving the performance of existing companies and creating new ones; improving public services and inspiring the public. This contribution is far broader than research and must not be lost.

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