Values

1.1    Higher education is a great national asset. Its contribution to the economic and social well‑being of the nation is of vital importance.

1.2    Its research pushes back the frontiers of human knowledge and is the foundation of human progress. Its teaching educates and skills the nation for a knowledge-dominated age. It gives graduates both personal and intellectual fulfilment. Working with business, it powers the economy, and its graduates are crucial to the public services. And wide access to higher education makes for a more enlightened and socially just society.

1.3    In a fast-changing and increasingly competitive world, the role of higher education in equipping the labour force with appropriate and relevant skills, in stimulating innovation and supporting productivity and in enriching the quality of life is central. The benefits of an excellent higher education system are far-reaching; the risk of decline is one that we cannot accept.

Our strengths

1.4    We are rightly proud of higher education in England. Our universities and colleges have been through a dramatic transformation over the last quarter-century as participation in higher education has tripled, and generally have maintained high quality and good value despite a halving of the unit of funding.

1.5    Universities also make a substantial contribution to the strength of the national economy. In 1999–2000 they generated directly and indirectly over £34.8 billion of output and over 562,000 full time equivalent jobs throughout the economy. This is equivalent to 2.7 per cent of the UK workforce in employment. For every 100 jobs within the HEIs themselves, a further 89 were generated through knock-on effects throughout the economy; and for every £1 million of economic output from higher education, a further £1.5 million is generated in other sectors of the economy.1

1.6    Research in higher education has real strengths. Britain has produced 44 Nobel prize winners in the last 50 years. With 1 per cent of the world’s population we have an 8 per cent share of the world’s scientific publications. 13 per cent of the world’s most highly cited publications are British, which shows that our research has a strong influence on other work. We score better than anyone in the world except the USA on each of these measures (Figure 1). And out of 20 main fields of scientific research, while the USA with its unsurpassed research base leads the field in each case, the UK has the second largest share of citations in 15 areas and comes no lower than fifth in any discipline. Collaborations with our European partners through the Framework programmes have already strengthened and extended our research base very significantly. UK science and technology have been major beneficiaries of EU funding. And ‘Investing in Innovation’, the Government’s strategy for science, engineering and technology, announced significant increases in funding for research.

Figure 1: Number of world citations of scientific publications per country, 1981–2000

Source: Office of Science and Technology, 2002

1.7    Most students are satisfied with the standard of teaching and learning, and British higher education brings substantial benefits. Ninety-three per cent of full-time first-degree students are in employment or going on to further study six months after graduation. Those who have been through higher education in the UK earn on average 50 per cent more than those who have not,2 and the rate of return from higher education in the UK is higher than in any other OECD country. Our non-completion rate for first degrees remains just 17 per cent, which is almost the lowest in the OECD. Britain is a growing and attractive destination in the highly competitive market for overseas students. In 1962–63 there were 28,000 overseas students in Great Britain, representing 8 per cent of the student population; by 2001–02 there were about 225,000, almost 11 per cent.

1.8    Links between universities and business are strong and growing. The record of our universities and colleges has been encouraging as measured by business start-ups and other spin out activity. During 2001, universities created 175 new spin-out companies, and that number has been increasing rapidly – it averaged around 70 a year in the five years to 1999–2000.3 They include innovative companies like the Leeds spin-out Ecertec, which aims to develop smart materials that will allow, for example, ‘warpable’ wings to change shape on aircraft. There has also been a sharp increase in the number of patents filed, up 22 per cent between 1998–99 and 1999–2000, and the proportion of higher education research income funded by companies in the UK is also up and is now at a higher level than even the USA. There are numerous examples of higher education institutions helping companies to be more innovative and competitive. For example, Exeter University provides product development facilities which have assisted more than 300 small firms. And institutions now offer a wide range of courses to provide continuing professional development to employees in specific firms or business sectors. Higher education also plays a key role in supporting knowledge transfer and innovation management in the public sector – for example, in the NHS.

1.9    Our system has successfully transformed itself from an elite system – in which, in 1962, only around 6 per cent those under 214 participated – to one where in England around
43 per cent of those aged between 18 and 30 go to university. Despite the rise in the numbers participating in higher education, the average salary premium has not declined over time and remains the highest in the OECD.5 It is not the case that ‘more means worse’.

1.10  At the same time universities have changed the nature of their provision to reflect the changing demands of students. Some higher education institutions have gone out of their way to encourage applications from schools and colleges whose students do not normally participate. Others have embraced new ways of delivering learning and new types of course to meet the needs of a wider range of learners. The number of students receiving qualifications below degree level grew by 39 per cent between 1994–95 and 2001–02, far faster than the increase in the numbers receiving honours degrees (up by 12 per cent). Part-time study, where students can combine learning with work, is expanding too, with 11 per cent of first degree graduates obtaining their qualification through part-time study, compared to 10 per cent in 1994–95.6 Eleven per cent of higher education students are studying in Further Education Colleges, allowing them to learn near home or work, and providing progression paths through from earlier study. In 2000/01 21 per cent of students studied from home, compared to 15 per cent in 1994–95.

The danger of decline

1.11  Higher education in England therefore has a good story to tell. Nonetheless, the whole system is undoubtedly under severe pressure and at serious risk of decline. Decisions must be taken now to maintain the excellence of the sector as a whole.

1.12  The challenges are clear. Many of our economic competitors invest more in higher education institutions than we do. France, Germany, the Netherlands and the USA all contribute 1 per cent of gdp in public funding to higher education institutions, and Japan is planning to increase public investment from 0.4 per cent to 1 per cent. This compares to 0.8 per cent in the UK, rising to approximately 0.9 per cent by 2005 because of our generous spending review settlement.7 Our competitors see – as we should – that the developing knowledge economy means the need for more, better trained people in the workforce. And higher education is becoming a global business. Our competitors are looking to sell higher education overseas, into the markets we have traditionally seen as ours.

1.13  There are challenges internal to higher education here too:

•   to recruit, retain and reward the calibre of academic staff needed to sustain and improve both teaching and research.

•   to maintain the infrastructure for research and teaching.

•   to make sure the investment in higher education – whether paid for by the taxpayer, the student, their employer or someone else – is used to best effect.

Research

1.14  There is a real danger that our current strength in the world will not be maintained. The Research Assessment Exercise, in which research funding through the Higher Education Funding Council for England (HEFCE) is distributed according to quality and volume of research, has undoubtedly led to an overall increase in quality over the last 15 years. But there is growing competition from other countries. Looking at Nobel prizes, or at citation rates for scientists, indicates that although our position is still strong it is declining. And we may not be making the best use of inevitably limited research funds at home. International comparisons show that other countries, like Germany, the Netherlands and the USA (where research and the award of research degrees is confined to 200 out of 1600 ‘four year’ institutions) concentrate their research in relatively few institutions. Similarly, the Chinese Government is planning to concentrate research funds through the creation of ten world-class universities; and in India there is a national Institute of Technology, on five sites across the country. This suggests we need to look again at how our research is organised, and make sure we capture the benefits of concentration, and that we have a number of institutions able to compete with the best in the world.

1.15  The Transparency Review, which looked for the first time at the distribution of expenditure on research and teaching in HEIs across the UK, showed that research was under-funded, and the deficit was made up at the expense of investment in the research infrastructure, or of teaching.8 The effect was particularly marked in institutions which were not research-intensive. Approximately half of the higher education estate was built, to relatively low and inflexible specifications, in the 1960s and early 1970s. Much of it is nearing the end of its design life, and new requirements arise from scientific and technological advance, as well as recent growth in research volumes. The reports commissioned from JM Consulting by HEFCE9 found that there was an infrastructure backlog of about £8 billion, consisting of a research infrastructure backlog of £3.2 billion, and a teaching infrastructure backlog of £4.6 billion, plus a need to double spending on maintenance.

1.16  And there are continuing concerns about our ability to recruit, retain and reward the best researchers who provide the essential research leadership. Although the overall figures show a ‘brain-gain’ rather than a ‘brain-drain’ in flows of scientists into and out of the country, figures from the Royal Society support the hypothesis that the researchers moving out of the country – typically to the USA – are among our best. A survey of Royal Society Fellows found that in 1999 26 per cent of Fellows worked outside the UK (12 per cent in the USA). We need to consider how to attract and retain the best researchers internationally, and how to maintain a steady flow of the brightest and best young people into research.

1.17  Average earnings have risen considerably faster than academic pay over the last 20 years. Comparing USA and UK academic salaries, it is striking that the difference in average salary scales is far smaller than the difference in salaries at the top end, for the best researchers. This raises questions about whether our institutions are using salaries to the best possible effect in recruiting and retaining excellent rsearchers. International comparisons suggest we should also be thinking hard about whether institutions could do more to help the best researchers focus on research, rather than teaching and administrative duties.

Teaching

1.18  Teaching has for too long been the poor relation in higher education. Promotion for academics is based largely on research excellence, rather than teaching ability. There is no respected and defined separate professional career track for higher education teaching in its own right. Only around 12 per cent of academic staff in higher education are members of the Institute for Learning and Teaching in Higher Education, and not all of those necessarily have any formal teaching qualification. And here again there are recruitment difficulties. HEFCE’s annual survey10 reveals a recruitment situation that has steadily deteriorated since the survey was inaugurated in 1998. Over 60 per cent of institutions reported difficulties in recruiting lecturers. Recruitment difficulties were particularly concentrated in certain subjects, notably computing/IT, business-related subjects, science, engineering, medicine-related subjects and education.

1.19  Students have insufficient information on how good the teaching is when applying for courses. And here again there is a story of decline: staff-student ratios have fallen from just over 1:10 in 1983 to 1:18 in 2000 and this tends to mean that students write fewer assignments and have less face-to-face contact with staff.11 There is too little collaboration between higher education institutions (HEIs), which can raise standards; support the development of modules and courses particularly at the introductory level; and promote the innovative use of ICT and credit accumulation and transfer.

HE and Business

1.20  The proportion of businesses using information from HEIs to help with innovation has increased over recent years, and is now 16 per cent of companies. But this is still a small minority.12 When universities were asked to benchmark themselves, fewer than half declared that they had more than a restricted or partially implemented plan for business support.13 A succession of employer surveys reveals concerns about the skills of graduates, particularly in terms of communication and other ‘soft’ skills. And although UK institutions are growing stronger in knowledge transfer, their exploitation of intellectual property – to take one example – is weak by international standards.14

1.21  These weaknesses are not all of HEIs’ making. Universities have often experienced difficulties in transferring knowledge to business through research and development work, and businesses are often unclear about what they want. And, though the new Regional Development Agencies are now building graduate-level skills into their planning, this is in many cases a relatively recent development. There is clearly scope for the higher education sector to improve its performance still further and for businesses to be clearer about what they want from HEIs. This will be informed by the outcome of the Lambert review, announced by the Chancellor of the Exchequer in November 2002, which will investigate ways in which the interactions between universities and businesses can be enhanced.

Expansion and Flexibility

1.22  Demand for graduates is very strong, and research shows that 80 per cent of the 1.7 million new jobs which are expected to be created by the end of the decade will be in occupations which normally recruit those with higher education qualifications.15 So it is in the country’s interest to expand higher education. At the moment we calculate that the participation rate for English students in higher education is around 43 per cent of 18–30 year olds.16 Participation rates are lower, according to OECD comparisons, than in many other developed countries, including Australia, Finland, the Netherlands, New Zealand, Norway and Sweden.

1.23  There is even more catching up to do when we look at education levels in the existing workforce, rather than at current entry rates. The proportion of the whole labour force educated to degree level in the UK is 17 per cent compared to 28 per cent in the USA.17

1.24  If we want to close the productivity gap we must close the skills gap, and that in part means boosting higher education. But we are also convinced that expansion should not mean more of the same. The pace of both social and technological change means that education, including higher education, can no longer be confined to the early years of life. This is truly an era of lifelong learning. Today’s generation of students will need to return to learning – full-time or part-time – on more that one occasion across their lifetime in order to refresh their knowledge, upgrade their skills and sustain their employability. Such independent learners investing in the continuous improvement of their skills will underpin innovation and enterprise in the economy and society. Lifelong learning therefore implies a fundamental shift from the ‘once in a lifetime’ approach to higher education to one of educational progression linked to a process of continuous personal and professional development.

1.25  There is good evidence to suggest that the skills gap is most acute at a level that is represented by higher education qualifications below degree level, particularly two-year work-focused provision. The National Skills Task Force reported that jobs in the ‘associate professional’ and higher technician level will experience the greatest growth in the coming years, increasing by 790,000 up to 2010. And analysis of the Employer Skills Survey 2002 shows that associate professionals and technical occupations have the highest proportion of skill shortage vacancies relative to the numbers employed – 1.2 per cent compared to 0.2 per cent for managers. Shorter, more work-focused courses are also better suited to a culture of continuous professional development.

1.26  Work-focused courses at these levels have suffered from social and cultural prejudice against vocational education. Employers claim that they want graduates whose skills are better fitted for work; but the labour market premium they pay still favours traditional three-year honours degrees over two-year work-focused ones. And students have therefore continued to apply for three-year honours courses in preference. We must break this cycle of low esteem, to offer attractive choices to students about the types of course they can undertake.

1.27  And this is true not just of work-focused provision. Our system is not good enough at offering students real choice about how they learn. Higher education should be a choice open to everyone with the potential to benefit – including older people in the workforce who want to update their skills. There are not enough choices for flexible study – including part-time courses, sandwich courses, distance learning, and e-learning – and there must be an increasingly rich variety of subjects to study, which keep pace with changes in society and the economy.

Fair Access to Higher Education

1.28  Universities are a vital gateway to opportunity and fulfilment for young people, so it is crucial that they continue to make real and sustained improvements in access. The social class gap among those entering higher education is unacceptably wide. Those from the top three social classes are almost three times as likely to enter higher education as those from the bottom three. Figure 2, below, is even more disturbing, because it shows that the gap has widened. At the extremes, the picture is worse. Young people from professional backgrounds are over five times more likely to enter higher education than those from unskilled backgrounds.

Figure 2: Higher Education entrants by social class groups (1960–2000)

1.29  This state of affairs cannot be tolerated in a civilised society. It wastes our national talent; and it is inherently socially unjust. We know that the roots of inequality are deep – in the education system, social class differences show themselves from the very earliest years. We are tackling them throughout the education system and beyond, knowing that the most important factor in getting access to higher education is earlier results at school or college. But we cannot allow this to be an excuse for failing to take decisive action to improve access to higher education. We must do everything that can be done to make sure that everyone who has the potential to benefit from a university education has the opportunity to do so.

1.30  And our access difficulties occur despite having a level of public spending on financial aid to students (including student loans) as a percentage of total public expenditure on higher education that is the highest in the OECD – 36 per cent in the UK, compared with 8 per cent in France, 19 per cent in Canada and 30 per cent in Sweden.

Funding

1.31  Underlying each of these policy challenges is a funding challenge. The graph below (figure 3) shows that although publicly planned funding for higher education has risen dramatically under this Government, the decline in the unit of funding was only reversed in 2000–01. We saw a drop of 36 per cent in funding per student between 1989 and 1997.18 We have outlined, above, the funding challenges that come from wanting a world-class research operation; and we know that there is an infrastructure backlog in both teaching and research.

Figure 3: Comparison of Total Publicly Planned funding for Higher Education (£million) and Unit funding (£) (1989–2003)

1.32  The Government has committed substantial investment to education. Between 1997 and 2006, the proportion of GDP spent on education will rise from 4.5 per cent to 5.6 per cent. Spending on higher education will rise from a total of around £7.5 billion in 2002–03 to almost £10 billion in 2005–06 – a real terms increase of over 6 per cent each year. The table below gives an outline of how the money will be used.

Summary of the Spending Review Settlement for Higher Education in England (£million)

 

*     Including estimates of the amount of the Office of Science and Technology’s UK wide funding that is likely to go to HE institutions in England. These estimates are forward projections based on spending in previous years by OST and the OST Research Councils.

**   Estimated share of student support likely to go on HE student domiciled in England. These estimates are based on the most recent data from the Student Loans Company.

1.33  This allocation is the most generous for a decade. It will stabilise the funding of universities, and allow them to make sustained progress in improving research volumes and quality and in tackling the huge backlogs in research and teaching infrastructure.

1.34  The Government will continue to stand by universities in future spending review settlements. However, for our universities to be able to develop their strengths and address the challenges that the future will bring requires a more sustainable funding regime with greater freedom for them to be able to access new funding streams on their own account.

1.35  In the long term, we see a much greater role for universities establishing endowment funds and using the income from them, in much the same way as is done in the United States. For example, Harvard has an endowment fund of $18 billion, while Oxford University and its colleges have only £2 billion. This, though, will require a significant change in attitude from donors, including alumni. Each year approximately 10 per cent of Princeton University’s overall budget is raised through Annual Giving. In 1999–2000, Annual Giving produced a record $35.7 million in unrestricted funds, with 60.8 per cent of all former undergraduate alumni participating. Durham University’s Annual Giving Programme, which has grown considerably in recent years, has only raised a total of somewhere over £1.5 million since 1994. If we are to give them real freedom, we must look at ways of helping our universities change the culture of giving and lever in more funding of their own.

1.36  We also believe it is right that individual universities should be able to secure increased contributions from their graduates to supplement the substantial support that they receive from the taxpayer, subject to firm limits to protect access and fairness. Different courses and universities bring different benefits to graduates, and we think that it is right both that universities should get differential benefits, and that graduates should make differential contributions to reflect that.

Diversity and Mission

1.37  The sector has embraced lifelong learning, research, knowledge transfer, social inclusion and regional economic development. There is a broad consensus within higher education that all of these elements are both welcome and necessary. However, it is unreasonable to expect all higher education institutions to sustain all of these activities simultaneously at global, and not just national, levels of excellence. No higher education system in the world is organised in this way. Rather, scarce resources are applied in such a way as to produce a focus on comparative advantage: individual institutions focus on what they do best, while the sector as a whole achieves this much wider range of objectives.

1.38  There is already a great deal of diversity within the sector. But it needs to be acknowledged and celebrated, with institutions both openly identifying and playing to their strengths.

1.39  The Government accepts that it has been partly responsible for the failure to have an honest recognition of universities’ different roles. For example, institutions have in large measure been driven towards greater involvement in research by the incentives in the funding mechanisms, and by the criteria for being awarded the status of a university (which helps them recruit students). Government will continue to be the principal funder of higher education, but we need to move to a funding regime which enables each institution to choose its mission and the funding streams necessary to support it, and to make sure that our system recognises and celebrates different missions properly.

1.40  We also see a strong link between the development of stronger missions and growing collaboration in the sector. One of the results of universities acting as if they all had the same mission has been that institutions across the sector view each other as competitors; more diversity will make collaboration easier as institutions with complementary missions associate. In research, this will help us preserve the best pockets of isolated research while concentrating funding on the very best; in teaching, it will help the spreading of good practice and the development of seamless progression routes for students; and in linking with business it will help make sure that groups of institutions can be responsive to a wide range of business needs.

1.41  Both mission and collaboration are challenges that will demand outstanding management and leadership in our higher education institutions. We must support the sector in developing the capacity not only to manage these changes, but also to be in the driving seat of future reform.

The vision for higher education

1.42  We cannot shirk the challenge of these critical issues. Higher education is too important. Our spending review settlement for the next three years is generous, and allows us to take the first steps towards our new vision for higher education. But we must use it to do more than hold off decline. We must take this opportunity to lay the foundations for the reforms which will transform the future of the sector.

1.43  Realising our vision will take time. Having presented a radical picture of a freer future, it is the duty of government to make sure that the transition is managed carefully and sensibly so that change is not destabilising. So in some areas government will want to support the way in which institutions move towards new freedoms, and develop new patterns of provision. Government also has to retain a role because it is the only body that can balance competing interests between the different stakeholders. It will also have a responsibility to intervene when universities fail to provide adequate opportunities or when access, quality or standards are at risk.

1.44  We see a higher education sector which meets the needs of the economy in terms of trained people, research, and technology transfer. At the same time it needs to enable all suitably qualified individuals to develop their potential both intellectually and personally, and to provide the necessary storehouse of expertise in science and technology, and the arts and humanities which defines our civilisation and culture.

1.45  To do so, our vision is of a sector which:

•   recognises and values universities as creators of knowledge and understanding and as engines for applying that new knowledge for the benefit of all;

•   recognises their role in educating their students to live life to the full, through the acquisition of skills and through fostering imagination, creativity and contribution to society;

•   acknowledges and celebrates the differences between institutions as each defines and implements its own mission. We see all HEIs excelling in teaching and reaching out to low participation groups, coupled with strengths in one or more of: research; knowledge transfer; linking to the local and regional economy; and providing clear opportunities for students to progress;

•   builds strong and purposeful collaborations, including with one another and with further education, to support the best teaching, research management and knowledge transfer;

•   supports and celebrates institutions which can compete with the best in the world in research;

•   is expanding towards 50 per cent participation for young people aged 18–30 years from all backgrounds and providing courses which satisfy both students and employers;

•   meets the developing needs of students for new modes of study and delivery of courses as well as pastoral and learning support;

•   offers the opportunity of higher education to all those who have the potential to benefit;

•   employs sufficient staff of the right calibre to achieve its missions, and which recruits, develops, retains and rewards them adequately;

•   has the freedom to be innovative and entrepreneurial, with strong management and visionary leadership which will set and achieve clear goals for improving quality across the whole range of each institution’s activity to implement its plans; and

•   has sufficient funding from a range of sources to sustain the sector and the institutions within it, and with an equitable partnership for investment in higher education shared between the taxpayer, the student and others.

1.46  This document sets out our strategy to move towards that vision. We are confident that greater explicit differentiation, greater freedom and greater collaboration are the keys to delivering the further improvement in quality we shall need to retain and strengthen our position as one of the world’s leading higher education systems.

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1    "The impact of higher education institutions on the UK economy"; Universities UK (May 2002). ...return