Speech by: Lord Mandelson
Venue: CBI HE Conference, London

For UK plc, HE and FE are ‘capacity costs’ – they are the costs of being in business at all. The reality is that they are rising. Because we compete on people and skills, even in technology-intensive sectors like manufacturing. And the skills we need both at the generic and specialist ends of the spectrum are getting more and more complex.

It seems to me that in equipping the UK for a post-recession global economy, higher education and adult skills will be not just important but decisive. As you know, soon we are going to be setting out new frameworks for both areas.

I want to acknowledge and applaud the engagement of the CBI on this issue, including the taskforce behind the CBI’s recent report. Central to my remarks today is the argument that that engagement could not be more important.

I also want to acknowledge up front that I accept that employers have concerns about aspects of the education system in this country. I know that many of you believe that the key problems lie in early education.

I believe in a demand led system and hearing and responding to business expectations are of course critical to that. Is Terry Leahy here today? Perhaps I shouldn’t say this, but blunt contributions like that are an important part of driving this country to improve. Every little helps.

But I think it’s worth saying that education policy is a long game, and changes to the way we teach and train deliver benefits and improvements across a timeframe of many years. Often at a rate that is always going to seem slow in business terms.

And I want us to acknowledge progress over the last decade. Levels of attainment are rising. Huge investment in school infrastructure. We have an effective Academies system ready for expansion. Both HE and FE are more responsive to employer needs now than they have ever been.

We are investing £1billion a year in workplace training and Foundation degrees. We’ve helped nearly six million adults improve their literacy and numeracy skills, with over 2.8 million getting a first through the Skills for Life strategy over the last ten years.

We also have more joint business-HE and FE collaboration than we ever have. Including a large amount of business participation on Boards of Governors and in the Sector Skills Councils. It’s important that that continues to be seen not as a formality but as central to a working relationship.

I want to make three points today. 1) I want to argue that we need to see HE and FE as a closely integrated single agenda. 2) I want to sketch briefly what I see as the strategic ambitions and constraints in HE and FE policy for the next decade. 3) I want to set out why I think government and individuals can fairly expect business to be more engaged in delivering these strategic ambitions, and what business has to gain from doing so. If you like, I want to set out what I think the flipside for business of a more demand led system should be.

Two systems, one goal

For me, HE and FE are two systems, joined by one goal. There was a time – well within most of our lifetimes – when our university and vocational training systems were seen as having distinctly different functions. Universities provided elite education and a training in the mores of professional life for about one in twenty of the population. Apprenticeships were for craftspeople – or rather craftsmen – who would go on to spend their lives in a particular trade. These were regarded not as different ways of making a living, but as different universes.

It was a division based on social prejudice as much as economic reality, and if it isn’t yet dead, it needs to be. Obviously universities and the further education system do not do the same job, teach at the same level or specialize in the same ways. But they have the same essential role which is building human capacity and higher skills.

Modern craftspeople will play a critical role in our economic future and are increasingly doing some of the highest value-added jobs in the UK economy. They are the technicians, designers and engineers who are the foundation of the UK’s advanced manufacturing sector. Teaching the practical skills in process management, IT and numeracy that are increasingly needed at all levels of employment is something that the further education sector has pioneered.

The huge expansion in UK apprenticeships has been one of the great achievements of this government, even though we recognise that we need more apprenticeships at higher levels to help address shortages in areas like skilled technicians.

Although I disagree with the CBI on the suspension of the 50% target for HE, I agree that it should never alone be the proxy for whether Britain has the high level skills needed to compete in a globalised world. We are right to insist on continuing to widen access to university education and we are right to invest heavily in making our university system and the research it does the best in the world.

But we also need to see the alternative routes to higher skills provided by apprenticeships and further education as no less valuable. We need to work for that convergence between the wider goals of the two systems.

Strategic ambitions and constraints

Both systems face the same basic strategic landscape. They both have a central role in contributing to Britain’s economic recovery and equipping us for a global economy. That’s why higher and further education were merged into a single department with a range of key other growth policy levers to create BIS.

Obviously this is only one part of a university’s role. They are academic and cultural institutions as much as engines of the economy. But part of maintaining support for public investment in that role, is demonstrating their relevance to our economic life as well.

We want to address the single biggest concern for employers which is generic skills – employability, the skills everyone now needs at work, at almost all levels. Team working, business awareness, communication skills. Business demands of graduates here are pulling very rapidly ahead. The system needs to respond and we will address it directly in both the HE Framework and the Skills Strategy.

We will also put more emphasis on identifying the strategic skills that the British economy will need in the future and new incentives for universities and colleges to work with business and industry in filling these skills gaps.

It will create a system more capable of responding quickly with funding to fill niche gaps in the skills base in critical industries such as the civil nuclear supply chain or low carbon technologies.

That will mean clear incentives to increase and improve the provision of science, technology, engineering and mathematics courses, where UK employers continue to report shortages. We already do this implicitly through the HEFCE differential funding and vulnerable subjects systems. But we will go further.

Now of course the CBI is right that the target for more STEM graduates has implications for the whole UK education system, which is why we will ensure that the ablest young scientists have access to triple science GCSEs and why we have set the target of 80000 young people taking maths A level by 2014.

The challenge for manufacturing of course is also going to be making sure fewer of those graduates decide to take their advanced degrees into the City or elsewhere – which is why I can only encourage the kinds of graduate recruitment and sponsorship – and starting bonuses – that CBI taskforce members like Nissan, Centrica and Balfour Beatty now routinely offer.

Both HE and FE also have a critical role to play in increasing social mobility in Britain. There is no silver bullet on social mobility, but education and higher skills are as close as you get to one. That means keeping up the pressure to widen access to HE – both with respect to the time in your life when you can access HE, and with respect to your social background, which should be irrelevant. Access to all forms of training is a question of equity and social justice as well of competitiveness.

That’s why we are going to put a greater emphasis on routes to higher skills that can be built around work: flexible study, foundation degrees and apprenticeships. It’s also why, along with protecting excellence, the goal of widening participation for those from less privileged backgrounds will remain a leitmotif of UK HE policy.

As the CBI have argued, we do need a greater degree of competition between institutions that encourages them to improve and tailor courses. That can mean competing for collaboration with industry, but the key drivers of change should be students, and student expectations. The more information students have on courses and their outcomes the more their choices will drive universities to improve. This is something we will directly address in the new framework.

Finally of course both HE and FE will be subject to increasingly tight fiscal constraint for the foreseeable future. I don’t accept that that this must impact on quality – in fact it must not.

Expanding investment means universities will have to deepen and diversify their sources of non-public income through commercialization of their teaching or research expertise, through a more professional approach to endowments and through greater resource efficiency.

We will also have to look at the contribution that individuals make to the cost of HE, which we will do through the independent fees review that will be launched after the publication of the HE framework.

The role of business

Over the last decade or so our expectations of the HE system in delivering economic impact have risen sharply – and rightly. Universities have responded to that willingly and actively.

But it is a three way partnership, in which business has to be central. After students themselves, you are the key clients of the higher skills system. It has to be shaped by your demand, and that demand has to be expressed clearly, coherently and quickly, both for generic and specialist skills. Business has to get better at communicating its needs, so that the system can respond and our universities are not left to make educated guesses about what business wants.

Business can and should also contribute more financially for a system that will be more vocational and more targeted on generating economic impact than ever before. But that relationship should clearly be collaborative and mutually beneficial and preferably long term. It is not something for nothing. It’s greater business engagement and support in return for a system that produces the right skills at the right time and which supports product and concept development.

We already encourage this in a range of ways: R&D tax credits, innovation vouchers, the HE Innovation Fund, support for employer co-funding of training. Our support for the TSB also encourages these ties. But, we will do more to support it.

Conclusion

The knowledge economy may have become a cliché, but it expresses a genuine reality about Britain’s future. Skilled people are our basic asset. They command better wages, get more out of work and rise higher. They are more productive and create better businesses and organisations.

I was impressed by the frankness with which the CBI HE taskforce accepted that business had not done enough to reinforce the HE system – and by its commitment to doing a lot more. The higher skills system is probably your fundamental supplier, and there is no way that a supplier relationship that important would or should ever be left to chance. It needs nurturing, strengthening, caring for. And we need to do that together.