Reform

The economic case for expanding the provision of higher education is extremely strong. But as we expand, we must not compromise on quality, and we must make sure that the courses and patterns of study on offer really match the needs of our economy, and the demands of students themselves. We must not and will not pursue expansion for its own sake, simply by offering more of what has always been offered before.

Key Points and Proposals

.   National economic imperatives support our target to increase participation in higher education towards 50 per cent of those aged 18-30 by the end of the decade. Participation in England is already 43 per cent.

.   The bulk of the expansion will come through new types of qualification, tailored to the needs of students and of the economy. Our emphasis will be on the expansion of two-year work-focused foundation degrees, as they become the primary work-focused higher education qualification.

.   We will support employers to develop more foundation degrees focusing on the skills they really need; we will encourage students to take them by offering financial incentives for them; and we will fund additional places for foundation degrees rather than traditional three-year honours degrees.

.   Foundation degrees will often be delivered in Further Education colleges, and we will build and strengthen the links between further and higher education, to give students clearer progression pathways and support the development of work-based degrees. As part of this, we will streamline the funding regimes to make collaboration easier.

.   We will establish 'Foundation Degree Forward', a network of Universities which are leading the development of foundation degrees, both as a catalyst for the further development, a reservoir of good practice, and to provide a validation service for foundation degrees offered in further education, so that students can be completely confident about their quality.

.   We will also encourage other sorts of flexible provision, which meet the needs of an increasingly diverse student body, by improving more support for those doing part-time degrees, and supporting the development of flexible "2+" arrangements, credit transfer, and e-learning.

The Case for Expansion

Economy

5.1    Society is changing. Our economy is becoming ever more knowledge-based - we are increasingly making our living through selling high-value services, rather than physical goods. These trends demand a more highly-skilled workforce. Forecasts by the Institute for Employment Research show that between 1999 and 2010 the number of jobs in higher level occupations - the ones most likely to be filled by those who have been through higher education - will grow by over one and a half million.28 That represents 80 per cent of new jobs over the decade. Almost half of these jobs will be at the associate professional and higher technician level - best served through effective work-focused programmes.

5.2    But we know that this is not the whole picture. The economy also needs people with modern skills at all levels. We are not choosing between more plumbers and more graduates. We need both, and we need to help individuals to make sensible and appropriate choices. The Government's Skills Strategy, to be published this year, will set out our proposals for raising the skills of the workforce at all levels, and ensuring that the education and training system responds effectively to demand from employers.

5.3    A comprehensive review of the academic literature29 suggests that there is compelling evidence that education increases productivity, and moreover that higher education is the most important phase of education for economic growth in developed countries, with increases in HE found to be positively and significantly related to per capita income growth. The review also found that education is highly likely to give rise to further indirect effects on growth, by stimulating more effective use of resources, and more physical capital investment and technology adoption.

5.4    Higher education qualifications are more than a signal to the labour market - they bring real skills benefits which employers are prepared to pay a significant premium for. The fact that studying different subjects brings different labour market benefits (which can't be explained by the qualifications the students began the course with) argues strongly that employers are responding to real and significant skills and qualities resulting from higher education qualifications.

Individuals

5.5    For the individual, the economic benefits of higher education are well-documented - quite apart from the opportunity for personal and intellectual fulfilment. Graduates and those who have 'sub-degree' qualifications earn, on average, around 50 per cent more than non-graduates. Graduates are half as likely to be unemployed, and as a group they have enjoyed double the number of job promotions over the last five years, compared to non-graduates.30 Higher education also brings social benefits - there is strong evidence that suggests that graduates are likely to be more engaged citizens. For instance, one Home Office report found a strong positive correlation between the cohesiveness of local communities and participation in higher education.31

5.6    Even though the number of graduates has risen significantly over the last twenty years, the gap between graduate and average earnings hasn't narrowed at all. If anything, it has increased. And the returns to HE are higher in the UK than in any other OECD country - in fact, the OECD's report describes the UK as being "in a group of its own".32 So there are real jobs available and no reason to believe that higher education will lose its value as more young people are educated to higher levels - especially if the main part of the increase comes in new and employer-responsive types of degree.

The 50 per cent target

5.7    For all these reasons, we believe that our target to increase participation in higher education towards 50 per cent of those aged 18-30 by the end of the decade, linked to our wider aim to prepare 90 per cent of young people for higher education or skilled employment, is right. Moreover, since on latest estimates England currently has a participation rate for 18-30 year olds of 43 per cent,33 the further increase we need to achieve 50 per cent by 2010 is relatively modest. The chart overleaf shows how other countries compare, using the nearest comparable OECD measure.

Entry rates to tertiary education (2000)34

5.8    But we do not believe that expansion should mean 'more of the same'. There is a danger of higher education becoming an automatic step in the chain of education - almost a third stage of compulsory schooling. We do not favour expansion on the single template of the traditional three year honours degree.

5.9    Our overriding priority is to ensure that as we expand higher education places, we ensure that the expansion is of an appropriate quality and type to meet the demands of employers and the needs of the economy and students. We believe that the economy needs more work-focused degrees - those, like our new foundation degrees, that offer specific, job-related skills.

5.10  We want to see expansion in two-year, work-focused foundation degrees; and in mature students in the workforce developing their skills. As we do this, we will maintain the quality standards required for access to university, both safeguarding the standards of traditional honours degrees and promoting a step-change in the quality and reputation of work-focused courses.

5.11  We welcome the fact that an objective review of the way in which the 50 per cent target is measured (the Initial Entry Rate) has just begun - led by the Office for National Statistics. Views are invited via the National Statistics website until the end of February 200335. The aim
is to increase the rigour and transparency of the method for measuring our progress.

Changing the pattern of provision

5.12  There is good evidence to suggest that the skills gap is most acute at a level that is served well by what has traditionally been termed 'sub-degree' provision - two year provision that is work-focused. The National Skills Task Force reported that jobs at the associate professional and higher technician level will experience the greatest growth in the coming years, increasing by 790,000 up to 2010. The Employer Skills Survey 2002 found that associate professional occupations were a 'hot-spot' for skills shortage vacancies.36

5.13  But work-focused higher education courses focused on this skill level 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. Graduates with honours degrees earn 64 per cent more than those without degrees, but including two-year work-focused courses, the figure drops to 50 per cent. And students have therefore continued to apply for three-year honours courses in preference.

5.14  New foundation degrees are making a good start as a reputable and truly employer-focused higher education qualification. In Chapter 3, we discussed the benefits that stem from involving employers properly in the design of courses, and outlined our proposals to make foundation degrees the standard two-year higher education qualification, by working to bring HNDs and HNCs into the foundation degree framework, and by providing development funding to key employment sectors, HEIs and FECs to help them design new foundation degrees, so they can extend their coverage of different sectors of employment. We will reinforce the value and significance of foundation degrees as qualifications in their own right. Holders of foundation degrees will be able to use the letters FDA or FDSc after their name, depending on whether their foundation degrees are arts or science based.

5.15  The proposed deregulation of fees set out in Chapter 7 will give institutions the flexibility to position their programmes in accordance with the costs of and perceived returns to particular qualifications. Foundation degrees are likely to be priced competitively in such a market.

5.16  But in order to get over the barrier of unfamiliarity and suspicion with which new courses are often regarded, and catalyse a change in the pattern of provision in the sector, we also intend to incentivise both the supply of and the demand for foundation degrees.

5.17  For institutions, we will offer additional funded places for foundation degrees from 2004, in preference to traditional honours degree courses; so that the numbers studying traditional three-year courses will remain steady, and growth will come predominantly through this important new route. We will also provide development funding for institutions and employers to work together in designing more new foundation degree courses, discussed in more detail in Chapter 3.

5.18  For students, we will provide incentives for those doing foundation degrees, in the form of bursaries which might be used either for extra maintenance, or to offset the fee for the course. We will provide £10 million in 2004-05, rising to £20 million in 2005-06, for these incentives.

5.19  We believe that these stimuli are necessary to break the traditional pattern of demand. Focusing more on two-year courses will serve both our economy's needs, and our young people, better in the future. But we know that we will only succeed in changing the pattern of provision if foundation degrees are valuable to employers, attractive to students, and supported by institutions. We cannot impose this change. So we welcome views on what more government can do to support the development of foundation degrees; and in particular on whether we have got the proposed incentives right.

Delivering Higher Education in Further Education

5.20  Further education colleges already play an important role in delivering higher education - they currently deliver 11 per cent of higher education. The vast majority of this (around
90 per cent) comprises two year work-focused programmes, including new foundation degrees, which means that delivery through further education will be especially important as we reshape the pattern of expansion.

5.21  Further education has strengths in providing ladders of progression for students, particularly for those pursuing vocational routes, and serves the needs of part-time students and those who want to study locally. Further education colleges make an important contribution to meeting local and regional skills needs, including through the higher education they provide. We want this significant role to continue and to grow. However, it will be important that any expanded provision is of the high quality that we expect from higher education. We believe that structured partnerships between colleges and universities - franchise or consortium arrangements with colleges funded through partner HEIs - will be the primary vehicles to meet these aims and will deliver the best benefits for learners.

5.22  However, there will be some instances - such as where 'niche' provision is delivered or where there are no obvious higher education partners - where direct funding of higher education in further education colleges may be more appropriate. These will be considered
on a case by case basis by HEFCE, against criteria which will include critical mass, track record on quality and standards, and nature of provision. HEFCE will issue new guidelines on the supply of places and funding of provision through colleges.

National Body for Foundation Degrees

5.23  Many further education colleges are working effectively with partner universities which formally award the foundation degrees they offer. In the best partnerships, these universities actively support the programmes and offer a real guarantee of quality to the student. However, not all further education colleges have local universities in the position to develo  egree programmes with them in such a close and supportive way. To address this and to widen the choice for further education colleges, and other colleges without degree-awarding powers, we will establish a new national network of universities - "Foundation Degree Forward" - to offer a dedicated validation service for foundation degrees. It will also act as a national centre for foundation degree expertise, liaising with sector skills councils and professional bodies to draw up frameworks for foundation degrees covering a wide range of skills needs.

FE-HE collaboration

5.24  As part of making it easier to form sensible partnerships across the further education/higher education boundary, government will remove unnecessary bureaucracy where provision crosses sectors and will provide equity for both providers and learners. We believe that there are unnecessary difficulties for collaboration between higher education and further education presented by the need to respond to the two different funding council regimes in relation to planning, funding, and data collection, as well as the difficulties of juggling the requirements of the two quality assurance and inspection arrangements. Different 'mixed economy' institutions and federal arrangements are developing where the traditional boundaries are no longer relevant or desirable. We will work with HEFCE and the LSC to take forward ways of reducing the difficulties 'mixed economy' institutions currently face as a consequence of operating within two funding regimes. This will include reviewing the administrative and legislative barriers that exist to improve greater integration of systems.

Inclusive and Flexible Teaching and Learning

5.25  As more people from non-traditional backgrounds go into higher education we must make sure that they are well-served when they get there. The application rate for mature students is continuing to rise, including applications for part-time study. Following that trend, we expect more people to study while at work, perhaps building on modern apprenticeships. So there must be more flexible ways of learning that attract people with different demands and commitments. We have described our proposals for increasing the number of foundation degree places. It is also important that opportunities for part-time and flexible study, including e-learning, continue to increase.

There are a number of ways of providing additional flexibility:

.   "2+" models offer an important model for more flexible higher study, with students undertaking the first two years of a degree, or an alternative programme - perhaps a foundation degree - in one institution, and having the opportunity to move to another to complete a full honours degree, often but not always over a further one or two years. We will be working with HEFCE to develop a framework for funding and incentivising more "2+2"
and "2+1" style provision to take forward the work that has already been done in the sector.

.   Credit systems, which make it possible to break off and start again without having to repeat learning, will become increasingly important as the routes into and through higher education become more varied. They help motivate learners, recognising achievement along the way; and they help institutions develop flexible curricula. Many institutions have internal credit systems, and there are a number of consortia with shared ones (see Box I). HEFCE will work with partners in the sector - from 2003 onwards - to build upon the best current practice, and to scale this up so that there is widespread and consistent use of credit across higher education.

.   ICT and e-learning offer another flexible way to study, and also make it easier to share teaching material within and between institutions (see Box J over). The Open University has over 160,000 students accessing online services for their courses, some 20,000 of whom are studying from overseas. HEFCE has set up the UK e-Universities project to encourage HEIs to work together and make the development of e-learning more affordable, sharing the development costs of e-learning materials to reduce the barriers to market entry. HEFCE will now work with partners on plans to embed e-learning in a full and sustainable way within the next ten years.

.   A further possible flexible form of provision is the compressed two-year honours degree, with a different pattern of terms and shorter holidays. This may suit those who would have difficulty spending a full three years in full-time education, but who have the enthusiasm and the drive to complete a higher education degree. The Flowers report37 considered the extension of the teaching year by using the summer as a third semester. This would allow students to complete degrees over two years, and also allow more flexible work patterns. Again, funding patterns do not currently support this sort of provision particularly well, but we will establish a pilot to encourage institutions to try out two-year honours degrees, and evaluate them carefully.

Recruiting international students

5.26  We have a very strong record in recruiting international students, and as we expand our provision we should build on this record. People who are educated in the UK promote Britain around the world, helping our trade and diplomacy, and also providing an important economic benefit. British exports of education and training are worth some eight billion pounds a year - money that feeds into our institutions and helps open up opportunities for more people to study. The Prime Minister has set us the target of attracting an extra 50,000 higher education students to the UK from outside Europe by 2005. Institutions are currently well on track to meet this, having already recruited an additional 31,000 by 2001-02 . Working closely with the British Council, we are promoting our higher education across the world, including intensive work in many countries and bringing together all of the relevant information on the internet. We are pioneering the New Route PhD courses, now offered by 31 universities in England, as fully competitive with the best in the world. And many individual universities and colleges are dedicating their own efforts to targeted recruitment.

Resources to support our strategy (£m)

*     Additional funds for growth in higher education are also included in the teaching and student support chapters.

28  Wilson, R.A., and Green, A.E, (2001). Projections of Occupations and Qualifications 2000/01: Research in Support of the National Skills Task Force. Sheffield: Department for Education and Employment. ...return

29  The Returns to Education: A Review of the Macro-Economic Literature; Barbara Sianesi and John Van Reenen, (March 2002: Institute for Fiscal Studies Working Paper 2002/05.) - It should be noted, though, that there are both data limitations and methodological problems in isolating the contribution of any particular factor empirically. ...return

30  Taylor Nelson Sofres Omnibus Survey, 2002. ...return

31  Community Cohesion: A report of the independent review team chaired by Ted Cantle, Home Office: 2001....return

32  Education at a Glance 2002; OECD, p. 127....return

33  For English-domiciled students in UK HE. 42 As of end July 2002, including combined endowments and other reserves of all colleges (estimated at £1.6 billion), as well as the university's overall endowment (£390 million). ...return

34  OECD, Education at a Glance 2002....return

35  www.statistics.gov.uk...return

36  Employer Skills Survey 2002 Department for Education and Skills (2002)....return

37  The Review of the Academic Year; A report of the Committee of Enquiry into the Organisation of the Academic Year, HEFCE (1993). ...return

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