Higher education is now one of the most visible, tangible and important expressions of our country around the world. It is a positive expression of our values and ways of working, and of our contribution to tackling great global challenges, as well as being critical to our future prosperity.
Royal Holloway, London
02 April 2009
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Good afternoon.
I would like to start today by thanking David Eastwood – HEFCE’s Chief Executive until last week – and wish him well as vice chancellor of Birmingham. He has been instrumental in setting in train some very important changes in higher education. I know David’s success at HEFCE is acknowledged by you all, and it’s excellent for the HE sector that his wisdom and skills will still be available as he takes up his new role.
I am also delighted to welcome Sir Alan Langlands down from Dundee, in his first week as HEFCE Chief Executive. I’m sure you have been taking the opportunity of this conference to get to know him, if you don’t already. I knew Alan in his days in charge of the NHS, and I know he will be a fine leader of the Funding Council at a very important period in its history.
Much has changed since this time last year, both in Government and in the country. It has been another year of success for higher education. As the latest UCAS figures have shown, the number of accepted applicants to full-time undergraduate courses increased by 7 percent last year, and now over half of young people from all social classes are aspiring to go to university.
You’ve engaged constructively in the HE debate since its launch last year. We are moving close to setting out a framework to ensure our higher education system remains world class over the next ten to fifteen years. Amid this, as you know, will be the backdrop to the independent review of funding.
But when we met last year, it was certainly not clear just how dark the economic storm clouds that were brewing would become. You, like everyone else, have been affected by, and forced to respond to, the enormous changes in the global economy. You’ve done so with imagination and commitment, and I’ll return to the immediate challenges later in my remarks.
The credit crisis and associated recession which began with sub prime lending in America, has swept through the world, not just in the west but in emerging and newly emerged economies such as China and India. No country is immune. The challenge we face in the UK is not just to support businesses, families and individuals through the immediate crisis, important though that is, but to look forward to our economic future and to take action to ensure that we come out of the recession as swiftly and strongly as possible.
Embracing protectionism is not the answer. Such an approach can only slow recovery and would be to the long-term detriment of the economy and ultimately to the prosperity of businesses and families in the UK.
Only international action can truly bring results. On a day when the international agenda leads the news, it is worth pausing to reflect on the success of our universities and colleges in attracting the brightest and best from all over the world to teach and study. In collaborating with leading academics from across the globe. And in fostering British shared values in an increasingly global world.
The G20 conference, brought here at the invitation of Gordon Brown, is clearly key to the way the world community responds to these enormous challenges.
We will all be looking at five tests of whether today’s summit achieves its aims:
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restoring growth to emerging market economies
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cleaning up the banking system - agreeing tighter and transparent regulation of markets and financial institutions based on common principles;
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committing to doing whatever is necessary to bring about a resumption of growth;
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resisting protectionism and kick-starting global trade;
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and finally, our recovery must be a low carbon and sustainable recovery, conserving our environment for the future.
But as the world moves, as it will, out of recession, we will face the challenge of building a more diverse and more equitable economy, with greater resilience in terms of our energy and food supplies – all within an increasingly competitive world.
As we develop a clearer idea of the sectors of the economy in which we have particular expertise, what we do to respond to the downturn must take us towards our vision for a world class higher education system in 10-15 years. It will be interesting to see which of the innovations remain in the system. For instance, I hope the extra attention that is now being paid to university careers services may permanently improve the service they offer, not just to students but frequently to graduates of their university.
Strengths, potential competitive advantage, and the ability to generate wealth and jobs, we will need to ensure that government policy is coherently organised to make the most of this potential. But success in key areas like nuclear and renewable energy, life sciences, low carbon manufacturing, digital Britain, will not simply happen.
You will almost certainly have heard the phrase ‘industrial activism’ around Government. It means a new thrust in government policy. Not a return to picking winners, but of consciously organising ourselves for success in the areas of our greatest strength. And this means being coherent across public policy. From what government buys, and whether it encourages innovative solutions and new companies, to where we invest in fundamental research. From how and what we regulate, to the finance for start-ups.
Last week I visited four different regions to explore some of these areas of potential strength; looking at the potential of research into ageing and vitality in the North East; nuclear power and materials chemistry in the North West; advanced manufacturing in the West Midlands, and creative industries in London.
Universities were at the heart of every discussion. Intimately involved in developing our current strengths and potential in each of these areas. From the development of graduate and post-graduate talent, to fundamental and applied research to knowledge transfer to civic leadership: it was clear that higher education will be key to any forward looking policy. Just as higher education has taken a lead in developing relevant skills and research capacity in these areas in recent years, it will do so in the future.
Everything that has happened in the past year has reaffirmed my view of the importance of HE. As I said in February, Higher education is now one of the most visible, tangible and important expressions of our country around the world. It is a positive expression of our values and ways of working, and of our contribution to tackling great global challenges as well as being critical to our future prosperity. And of course, higher education is a huge strategic asset, contributing at least £45bn to the UK economy. The countries which fail to invest in HE will fall behind as global demand for HE continues to rise quickly.
But, it is also clear that an effective new industrial policy will also shape the future demands on higher education. Many parts of public policy will need to change to make the most of our national strengths and potential, and higher education will also need to respond.
They will affect both teaching and research. Not only whether we produce sufficient graduates, and graduates with the right level of education and employability but, crucially, whether we can ensure we have the right people in the right place at the right time to make the most of our potential. Not only the volume and quality of research, but understanding how the way we organise our research will influence our strengths in the short, medium and very long term.
And we will need to reflect this when we publish the HE framework.
Our work on this is at a fairly early stage. But I think we can easily identify areas where the pressure for change is great.
Firstly, the general issues of employability of graduates; general rather than specific employability skills. I know this is a fraught issue. Few of us were much use to anyone in the first weeks after we graduated, and some employers have an unrealistic expectation of just how work-ready a new graduate can be. But I’m in no doubt we could do better. Many initiatives are under way, and there is a renewed enthusiasm for sandwich courses, work experience during degrees, and other forms of relevant work experience. Our ambitions for internships this Summer and Autumn are very much focussed around improved the employability of graduates by enabling them to use their education in a real work setting.
Secondly, we need look more closely at our expectations of some vocational subjects. It’s hard to ignore feedback from employers that some vocational subjects do not provide what they need. (Although, at a sector skills council meeting last week which pressed this point, it transpired only one person in the room was working in the subject for which university had apparently prepared them). I’m equally concerned that some student may choose an apparent vocational degree without good knowledge of how the degree is really seen by employers, and whether a different choice might not be better for their career. This discussion raises issues about the value of professionally accredited degrees, whether certain degrees should be preferred and the information available to students from both higher education and employers. David Lammy will be saying more about this, and the way forward, when he publishes the Higher Level Skills Strategy in the very near future.
Thirdly, as I’ve recently said, within the overall diversity of higher education we will need to increase the proportion delivered through non-traditional (in the sense of three year full time undergraduate) degrees. Strong progress is already being made on employer-co-financed degrees, with 10,500 co-funded places in 50 HEIs achieved this academic year, a 50% increase on planned places. And I’m told employer commitment is holding up well despite the economic challenges, demonstrating the strength of the partnerships forged between HEIs and employers. The sector as a whole has a strong commitment to part-time degrees, though we should acknowledge that the growth in part time numbers has currently slowed and we will need to identify and address the reasons. New technology offers more and more choice to the learner, and more exciting pedagogical possibilities. The apprenticeship model offers additional scope for innovation. I have already said that every apprenticeship should have a clear pathway to higher education, and degrees that are much more work based could offer a radical alternative to the traditional 3 year undergraduate degree.
A new industrial policy will certainly put more pressure on education. Increasingly, some of the key skills needed – right people in the right place at the right time – are at masters or doctorate level. I fear our relative competitive strength in postgraduate provision lags behind that of our undergraduate provision. A couple of months ago I acknowledged that we lacked a comprehensive postgraduate policy, or indeed ownership of policy, at either taught masters or research masters and doctorate level. I’ve no desire to bring policy in where none is needed, but there is no doubt we shall need to ensure we do not leave the country short of key higher level skills.
We can’t develop those higher levels skills without a constant flow of students into the system. Today we have published a report on STEM by two Vice Chancellors, Julia Goodfellow and John Coyne. One of its key recommendations is for students to get top quality information advice and guidance on STEM opportunities, and the qualifications they need to obtain them. I’m pleased that the report highlights areas of good practice where universities are actively reaching out to students in schools and colleges to encourage them to take triple science, STEM A levels and go on to a STEM degree. There is more to be done and a crucial role for higher education institutions.
In the rest of the skills system, we have reached the conclusion that we should support a demand lead system: support it up until the point where it is clear that, for whatever reason, a demand lead system is failing to produce the outcomes the country needs.
I think the same broad approach is needed for higher education.
HEFCE’s support for departments offering strategically important and vulnerable subjects has been a success in maintaining capacity here while some of the initiatives we have taken in the school system have had time to work through. Going forward, it may be that “strategic” subjects need to be decoupled once more from “vulnerable” subjects. Working with others, we must be clearer about the role we want “strategic” subjects to play in their various dimensions – research, skills and in the economy. We should look at ways that the system can be more proactive in promoting strategic subjects.
Finally, universities will be engaged in the current debate about how best to deploy our research budget. As the PM said in the Romanes Lecture at Oxford University recently, the debate about how science can help us out of the downturn is a crucial one. And we should be looking constantly at how to develop clear competitive advantages which will directly help the future British economy. This does not mean compromising on fundamental research. But it will mean working with scientists and those funding research, as we are now doing, to both identify potential priorities and then ensure that the research base works as much as possible to support them.
Funding systems
Many of the changes we need will be achieved by and through the quality of relations higher education builds, particularly with employers and businesses, and with the strategic direction of research. They cannot easily be mandated or directed. And, as always, it will be your leadership, within a system of considerable autonomy which will be crucial.
But funding is, of course, important. The funding mechanisms will need to support, and not hinder, changes in these directions. Just as the funding mechanisms we currently have shape the sector as it currently exists.
As you know, over a 10-15 year period, I believe that as a society will need to find ways of increasing the real levels of investment in HE. But I want to consider how we spend the public money we have, rather than how much we spend.
We know that the public funding system has delivered success. Having a core grant is simple and gives a huge amount of freedom to universities to determine and pursue their priorities. It places an emphasis on stability of income that enables long-term planning. This is essential because it gives institutions the autonomy and freedom they need to define and pursue their own missions and a degree of certainty about the future that allows them to think long- term.
At the same time, it can be adapted in ways which may be ad hoc but have been effective to create new capacity – HEIF, support for new local HE centres, capacity building for employer co-funding.
It incentivises institutions to seek funding from non-state sources.
I do not want a funding system that creates fixed groups within the HE world. We should not centrally prescribe roles for individual universities.
I do not want a funding system that rigidly ties a large number of funding lines to specific activities. That kind of micromanagement would undermine autonomy and innovation, and ultimately, the sector’s ability to thrive in an increasingly competitive world.
But I want to provide more incentives for dynamism, innovation and entrepreneurial activism. By dynamism, I mean having the flexibility and drive to move things in all directions. To be as innovative as possible with how we operate the funding mechanism. I’ve hinted at some areas today. We know that it can be hard to generate the type of higher level CPD course employers want, if the predictable demand from the employer cannot justify the investment by the university. We know that if there is no incentive to develop courses which bring professional accreditation, or which are tailored to current and future needs – and if student demand is insufficiently discerning - there is no particular pressure to do so.
I suspect that most of the time, in most courses, in most institutions, this may really not be the problem some imagine. But in key areas in key subjects in key areas of national importance it may well be.
So I will want to discuss with the Funding Council how we might evolve our current funding model to enable the higher education system to become more responsive.
It is relatively easy to create new pots of money to incentivise change. But at the expense of reducing the size and flexibility of the core grant. So although we could consider a slight rebalancing: relatively less funding in the core block grants and relatively more to support and drive change, the temptation to proliferate ever more initiatives could be strong.
So in developing the framework for higher education, which we will be publishing in the summer, I’ll be discussing with HEFCE what steers we should give.
Perhaps we should clearly limit the amount which could be withheld centrally at any one time. As now, I would hope that special funding would be deployed to promote strategically important developments such as international capacity; collaboration and partnerships; e-learning; and deeper engagement with business.
But it would create a strong pressure to retire or scale down current special funding streams as new priorities emerged. HEIF has already moved from competition funding to allocated grant, and as such activities prove their worth, may at some point no longer need to be separately identified. I would be disappointed if, in 10 years’ time, we had to spend as high a proportion of our funding on widening participation we do today. As we make progress in raising aspirations, the need to set aside specialist funding will reduce.
Within this approach, we may see the fastest change and the greatest innovation where funding is distributed through contestable processes rather than allocation.
An example of how contested funding drives innovation can be seen by looking at the Economic Challenges Investment Fund. I warmly welcome HEFCE’s response to the recession in setting up the Economic Challenge Investment Fund and the speed with which it is delivering help to the people and businesses that need it most. I have been excited to hear that many of the proposals submitted focus on areas such as STEM subjects, short courses for graduates, and a range of internships and work placements, often linked to knowledge transfer and exchange.
Response to the downturn
You of course know that challenges government faces; you are facing them yourselves in your own institutions. I have been impressed by the responsiveness of the sector to the downturn. The joint UUK/HEFCE brochure, Standing Together, has been widely distributed. We look forward to the announcement of the results from HEFCE’s own Economic Challenges Investment Fund. A number of universities and colleges have benefited from the bringing forward of capital spend. Some universities are advertising special deals for prospective masters’ students, which complements the Government’s help through the trebling of Professional and Career Development Loans. What we do to respond to the downturn must take us towards our vision for a world class higher education system in 10-15 years.
In the context of the new economic reality, universities and colleges, like other organisations, will have to address their cost structures, performance management and other issues. Everyone knows that the current period is challenging. As you will be acutely aware, we have a review of university fees and funding on the horizon. Undoubtedly, HEIs will have to account for the extra investment in HE. And we expect you to share the drive towards ever greater efficiency. Across the public sector, there is a powerful drive to identify real operating efficiencies through smarter ways of working more effective procurement and shared services. Whilst your autonomy, legal status and private sources of funding, mean that you are not state-run or wholly public sector organisations, nor would you expect to be entirely free from the scrutiny being applied to other recipients of large amounts of public money. We do not attempt to determine the operating practices of HEIs, but as the spotlight shines on other parts of the public sector, you should be making best use of the benchmarking data available to you on cost effectiveness and efficiencies.
Nor do Ministers set pay for the HE sector. It is quite rightly a matter for institutions. However, you will also be aware that in the private sector there is real restraint on pay, and sharp awareness in the trade off between jobs and pay. You will have seen earlier this week the announcement that the pay of many public sector professionals will see a smaller rise than expected. The higher education sector needs to be sensitive to what is going on in the wider world. When the fees review comes, it is bound to ask how effective has been the use of the monies raised to date.
These are challenging times. As you know, the main Opposition Party has promised, that if it were in power today, it would be cutting over £600m from my department’s budget this year, which makes it clear that, even after ten years of investment in higher education, we are no nearer to a cross-party consensus on its importance that we were ten years ago. In turn I acknowledge that you will want to get greater certainty about your funding for 2010-11 as soon as is humanly possible.
But every one in this room shares the belief that higher education is critically important to our nation’s future. As we work through the currently challenges, we need at every step to ensure that the decisions we take will put higher education in the right position to contribute most effectively to that future.
