Enterprise and Culture Committee, 18 Nov 2003

Meeting date: Tuesday, November 18, 2003

Official Report 177KB pdf

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Scottish Solutions Inquiry

We move on to agenda item 3, on the Scottish solutions inquiry. We are joined by Lewis Macdonald, the Deputy Minister for Enterprise and Lifelong Learning and, from the Scottish Executive, Lucy Hunter, head of the higher education and science division, and Jamie Hume, head of the higher education branch.

Minister, would you like to make some introductory remarks?

I am happy to do so, if you wish.

I am glad to have this opportunity to make a few general comments and to lay out the context in which we see the issue and will consider some of the questions that the committee has been examining. Our starting point—indeed, it is a common theme for members in the chamber—is the high importance that we give to higher education with respect to our economic policy and future prosperity. As members know, that importance is recognised in "The Lifelong Learning Strategy for Scotland" and in "A Smart, Successful Scotland".

I emphasise the view that Scotland does not beat its own drum as much as it might about its successes, qualities and strengths in this area. For example, our participation rate of more than 50 per cent is exceptionally high and we have very high-quality teaching. Furthermore, more than 10 per cent of our students come from non-European Union countries. According to Universities Scotland's figures, that attracts some £190 million in fees. Those students also add to the diversity of the experience of our own students who enter higher education. Our new approach to quality assurance in higher education leads the world in putting students right at the heart of considering and assessing such issues.

In the context of the committee's inquiry, it is important to note the data from the Universities and Colleges Employers Association that indicate that we are better than Wales, Northern Ireland or any of the English regions at retaining and recruiting higher education staff. That is a significant sign of the sector's strength. We are also seeking to make firm connections between the strengths of higher education and our enterprise strategy through, for example, the intermediary technology institutes that are getting under way and which will fund some of the work to connect higher education research to the commercial world.

We recognise that nothing stands still and that we need to move on. In that respect, our approach to maintaining that strength is outlined in "A Framework for Higher Education in Scotland", which was published last month. The framework, which was developed over 18 months with many of the players and others involved in the sector, describes the role that we, the universities and the Scottish Higher Education Funding Council can play in carrying forward our strategy in this area.

We need to be well aware that the higher education sector might face some challenges that arise from changes south of the border. Indeed, we must also be aware of the wider international context. Because of that, we have set up phase 3 of the higher education review, which will pull together evidence and attempt to establish, on as firm as possible a basis, our sector's strengths and the potential impact of any changes that take place elsewhere on the competitiveness of Scottish higher education.

In carrying out phase 3, we have involved around 80 representatives of some 20 organisations in either the steering group or one of the four working groups because we realise that it is an issue not only for Government, but for all those with an interest in Scottish higher education, and we therefore want to take a partnership approach. For example, Rami Okasha from the National Union of Students Scotland chairs the student working party; Tom McDonnell from the Association of University Teachers Scotland chairs the capital funding group; and Bill Stevely from Universities Scotland chairs the sources and uses of income group. Jamie Hume, who is on my left, is the only one of the four chairs who is a civil servant and Executive official.

The report is under way, and we intend to provide the committee with an interim report on the inquiry shortly. We hope that phase 3, which dovetails with the committee's consideration of the issues, will help us to consider some of the issues for Scottish higher education and to point us to the way ahead.

I will raise with you a general point, which was made early in the committee's evidence taking—in fact, I think that it was made before we took any oral evidence—on the amount of money that the Executive is putting into higher education as a proportion of the budget. The Scottish Executive budget has expanded considerably over the past couple of years, but the fact was highlighted that higher education is not expanding to the same extent as other items in the budget. What do you feel about that, especially given the importance that we all attach to higher education?

I agree that that is an important issue. It is important to begin by acknowledging that, in the current spending review period, there has been an increase in funding for higher education in the order of £100 million, which approaches a 7 per cent real-terms increase. We would not accept the idea that the increase in higher education funding should always match the increase in the overall budget. Whether in higher education or in any other area of Government spending, we do not think that simply maintaining a subject area's share of expenditure from one spending review period to another makes any sense. We would not have spending reviews if we thought that there was a magic formula by which we ought always to abide.

In the recent spending review, we recognised the need for significant expenditure in some other areas of Government policy and spending. In transport, for example, we identified a number of critical projects with the support of local partners—in each area, to my knowledge—including those involved in higher education, science and enterprise. That was an acknowledgment of a particular deficit in the transport policy area, which needed to be addressed. Likewise, in the next spending review, colleagues will consider the claims of each area of Government spending on their merits. They will not say, "What share did they have last time? Let's continue on exactly the same basis."

I do not want to put words in your mouth, but, leaving aside what might happen in England and Wales, which is the cause of our inquiry, do you get the feeling that our spending on higher education at the moment is about right?

We certainly have a strong position in the world marketplace, and the change in spending over the current spending review period has allowed us to maintain that level of competitiveness—for example, it has allowed us to maintain appropriate levels of access. We are conducting phase 3 of the review to determine what the appropriate level of spending for the next period will be. We want our conclusions to be informed not only by our phase 3 inquiry but by the committee's considerations and what happens elsewhere. As I said in my opening remarks, it is not yet possible to measure the consequences of what happens elsewhere, but we intend to keep close to the proposals as they progress and to be able to reflect their impact in our plans for the next spending review period.

I will push the minister on collaboration, about which we have heard quite a bit from those who have given us evidence. It would be fair to say, without giving anything away, that the committee has taken some interest in the issue. How do the Executive and the funding council evaluate the success or otherwise of collaborations so far? What measures do you use to say that something is good or bad; what are your parameters? I am interested to know where you are with that.

Measurement must be case by case. For instance, the collaboration between the University of Edinburgh and the University of Glasgow on computer science is world beating. It is a good example of the kind of collaboration that can happen and which we want to encourage to continue. There are also collaborations between universities in Scotland and universities elsewhere—for example, in the United States of America, in Europe and elsewhere in the United Kingdom—but we realise that there is a specific Scottish dimension to collaboration. Scotland is a small country, after all. Universities Scotland represents a relatively limited number of institutions that are able to work together in a very close way that is perhaps not always available to higher education institutions in larger countries. That is a strength that we want to build on.

In developing the individual strengths of individual institutions in the Scottish higher education sector, we want to encourage those institutions to work together and to collaborate when there are gains to be made—specifically concerning the quality of research and teaching, but also through other opportunities to make savings and so on that institutions can take by working together. We would encourage the institutions to explore those things although, clearly, they are their own masters and we have no intention of directing them in an absolute way. We seek to provide support and encouragement for positive collaborative ventures between Scottish universities.

Given what you have said about the benefits of collaboration and the relative smallness of Scotland, do you think that we have too many universities, although not too many students?

No, I do not. Diversity is a strength as well as a basis on which different institutions can collaborate. In a number of areas, there have been discussions around collaboration that have led to mergers between institutions. We do not have a firm and fixed view about that. Through the Scottish Higher Education Funding Council's strategic grants, we have encouraged collaboration and made it possible. However, the decisions on institutional form and so on are best made—or certainly initiated—by the universities themselves.

I have two questions that flow from each other. In your opening remarks, you said that it is not possible to measure the consequences of what happens elsewhere. That is probably a fair comment. The purpose of our inquiry is to consider what the likely consequences for and impact on Scottish higher education will be if top-up fees are introduced.

I understand that Jim Wallace made a speech this morning in which he referred to the committee's inquiry and the evidence that is being provided by various stakeholders who have spoken to us. He said that a common theme running through much of that evidence is the fact that those giving evidence feel that the Scottish higher education sector requires more funding from the Executive. However, he said that that case has not yet been made.

Jim Wallace also made the reasonably fair criticism of much of the evidence that, albeit that the inquiry is into Scottish solutions, precious little in the way of solutions is being proposed by many of those who are giving evidence. Nevertheless, given the fact that the bulk of the evidence is pointing in the same direction—to the fact that the stakeholders in Scottish higher education believe that there will be disadvantage to the sector if top-up fees are introduced in England and Wales—what is the Executive's solution if it is not more money?

We recognise that there is the potential for disadvantage. You are right to preface your remarks by saying that it is not yet possible to predict that with any certainty, as we do not yet know what proposals will come forward in England, far less how they will proceed through Parliament or the detail of their implementation and how that might impact on Scotland.

What we share with the stakeholders from whom you have heard is a determination to retain the competitive advantage that Scotland has. It is important to put the matter in those terms. We must not lose sight of the fact that, in comparison with other parts of the United Kingdom and based on many wider indicators, Scotland has a competitive advantage, which is why we are successful in attracting more than our fair share of UK research council grants and other funding. Our higher education institutions have established that competitive position and we want to retain it.

Next year, when colleagues come to consider the next spending review, they will want to continue with some of the themes that Jim Wallace raised at the conference this morning. Those themes include how to make the best use of existing resources in the higher education sector and a recognition that the proportion of higher education institution funding that comes from the Scottish Executive through the funding council varies. It can be as low as 40 per cent, but it averages at about half. Universities can already access other good income sources and we want to work with universities to help them to lever in more of that support. For example, many graduates who are now in work would appreciate the opportunity to undertake a one-year postgraduate course mid-career. Such students might contribute to the mix of people in education and bring funding with them, if their employers were so minded.

Scottish universities can work with the Government in many innovative ways to improve their funding other than through the public sector. However, of course we have a primary responsibility to fund the higher education sector. That is why we seek to put together evidence and will continue to examine outcomes elsewhere to reach a view on what funding will be required from the public purse in the next few years.

If we assume that top-up fees are introduced in England and Wales, all the evidence suggests that disadvantage may be created. Many stakeholders, including several university principals, have suggested to me privately that if that happens and disadvantage is clear, and the Executive is not prepared to make up the gap that those people perceive—whether or not you accept that that gap exists—they may say that top-up fees are needed in Scotland, too. If those stakeholders, such as university principals, beat a path to your door and say that if the Executive is not prepared to fund them, they must have top-up fees to remove the unfair playing field, is it inconceivable that the Executive would say, "No, you can't have top-up fees"?

We have made it as clear as we can that we have no intention of going down that route. The graduate endowment approach is the correct way of providing student support and we have seen and heard nothing to persuade us otherwise. University principals will make their case for funding, as we would expect them to, and we will listen carefully to them.

The gap in higher education funding at the moment relates to our per capita funding, which is significantly higher than that in England and Wales. Our colleagues at Westminster are right to seek to close that gap and to reduce our competitive lead. They are bound to want to improve the position of higher education in England and Wales, while we will want to maintain our competitive lead and will seek to do that affordably, efficiently and effectively. Of course we will listen to universities, as we will to other stakeholders, but we will do that in the context of our existing broad funding structures.

I do not want to put words in your mouth, but will you confirm that the Executive has not excluded contributing to filling the funding gap that would be created if top-up fees were introduced?

That is an important "if". At the moment, the only gap that exists operates the other way round, as Scotland has the competitive advantage. If changes elsewhere put us at a disadvantage, we would seek to address that. As I said a few moments ago, we would do so in several ways, one of which would be to consider the contribution that should come from central Government resources, but we would also consider other ways of working with higher education institutions to assist them in addressing their requirements.

You referred to the fact that Scotland does rather well at recruiting and retaining staff. Considerable concern has been expressed about whether we will continue to do so well, particularly in research. It has been suggested that we might even lose whole teams if money is not made available, but it has also been suggested that collaboration might be one way to overcome that. However, collaboration would make teams more attractive only if they had the finance to do that. Would you encourage collaboration on more than just the research and development side? In response to a question from the convener, you suggested that we did not have an excessive number of higher education institutions. Are there ways in which institutions can come together to take out some of the administrative cost base and redirect the money into R and D, teaching or some other aspect of their primary purpose?

That may be the case. On your first question about recruitment and retention, you were right to highlight the concern that our strong position could be undermined by changes elsewhere. That is why staffing is one of the four subject areas that we have asked the third phase of the higher education review to look at specifically.

The steering group for the review has met once and the working groups have each met once. They are now into their second round of meetings, and the steering group is meeting again next week. The initial feedback from the staffing group recognised that there may well be some specific cases where there will be a lot of pressure on high-calibre research leaders who are based in Scotland and are already subject to encouragement from competitor universities to move elsewhere. We recognise that that pressure could intensify if matters develop in a particular way, and we clearly want to be alert to that. It may be possible, as you suggest, for universities to fend off that kind of competition by collaborating and by setting their own aspirations. If universities wanted to discuss the possibilities of collaboration on their back-house functions in a way that strengthened their position front of house, we would certainly have no difficulty with that.

I have one further point on the same general area. Has the Executive given any consideration to encouraging the higher education institutions and research institutes to make being a researcher more attractive in Scotland than elsewhere by giving greater stability to researchers through their contracts? I know that one or two institutions have looked at that, but is it under consideration by your working parties? If someone has a short-term contract, they will not hang about if they get a better offer. However, if someone has a two or three-year contract, as opposed to a one-year contract, they might stay.

In our discussions with the higher education institutions, we have made it clear that we want to see a reduction in the levels of short-term contract working. In order to work toward that end, we have asked the Scottish Higher Education Funding Council to produce annual reports on the position with regard to short-term working.

It is clear that there is a bit still to be done. As you said, some institutions have moved more radically away from short-term contract working than others have, and there is still work to be done there. Part of that relates to the nature of the research work that the institutions are doing, as they may have short-term undertakings in a particular niche and may be looking for staff in that area. However, what we want to see come out of the process is an academic career structure that allows people—not just in their first post-doctoral appointment in an institution, but as they move further up over 10 or 20 years—to be clear about their career structure. That is not always the case at the moment, and we would encourage universities to continue to address the issue.

We are aware that some universities are already discussing how to make savings by collaborating in back-house areas.

I would like to ask a few questions about the policy-making process. A number of witnesses have used the phrase, "We are where we are." I would like to reflect for a moment on why we are where we are, and on where we go from here, given that we are where we are. Can you tell us what consultation or dialogue took place between UK ministers and Scottish ministers prior to the publication of the Department for Education and Skills white paper?

Not from personal experience. I was not involved in such discussions. My understanding is that the DFES white paper was produced at the beginning of the year, as a consultative document. In saying that, I look to my colleagues, who were officials in the Enterprise and Lifelong Learning Department at the time but, to my knowledge, we were not involved in that.

Quarterly meetings have been held between ministers since the publication of the white paper. In fact, I believe that they were held prior to that. Regular consultation on policy areas affecting higher education takes place at the level of officials.

You indicated that the Executive was not involved prior to the white paper's publication. Would you consider that to have been a flaw in the policy-making process? I am sure that you will have read thoroughly all the evidence that has been presented to us. You will note, for example, that Dr Chris Masters of the Scottish Higher Education Funding Council described it as "unhelpful" that there was not more consultation as regards Scotland before the publication of the white paper.

As a minister, I am finding that, particularly now that we have begun the second session of the Parliament, the habit and structure of consultation between Scottish ministers and UK ministers are getting stronger all the time. That is partly down to experience and it also relates to the changing role of the Scotland Office. It is a sign of the maturing of devolution that we have increasing dialogue with UK ministers on all manner of things. For example, Jim Wallace met Charles Clarke earlier in the month to discuss various matters. I met Ivan Lewis in September and discussed higher and further education and training matters with him. There is a growing dialogue at those levels, and I think that that is the right direction in which to move.

It is also important to recognise that devolution is not just about the Scottish Executive making policy in Scotland. It is also about UK ministers with responsibilities in England making policy for England. As I said earlier, Scotland's competitive advantage over England is a very good thing from a Scottish perspective but, if I were a minister with responsibility for higher education in England, I would be trying to find out how we could get some of what the Scots have and how we could match some of their strengths.

I would not expect policy proposals necessarily to be the subject of pre-publication consultation by the UK Government in areas devolved to the Scottish Parliament as a matter of course. The fact that the proposals have been presented in a white paper is important. What was published in January was not a signed, sealed and delivered deal but a set of proposals for consultation. We have engaged with Whitehall ministers on that basis.

Let me pursue a couple of points further, starting with a constitutional point. Although I am sure we would all wish the devolution settlement to be reflected and respected as part of the policy-making process, the UK Government surely has a responsibility to be concerned with the impact of its policy on the whole of the United Kingdom. Devolution should not give rise to situations where Scottish considerations are conspicuous by their absence. Returning to the evidence that we received, I note that Rami Okasha from the National Union of Students Scotland said:

"We also think that there is a paucity of mentions of Scotland in the document and that there is little understanding in the white paper of what has happened since devolution. Although it contains numerous international examples, it makes hardly any reference to what is happening in Scotland, Wales or Northern Ireland."—[Official Report, Enterprise and Culture Committee, 23 September 2003; c 143.]

I acknowledge what you say about the process continuously improving, but is there not a fundamental lesson to be learned here? In future, the UK Government, in those areas where relationships between it and the Executive exist, ought to go further to address the Scottish dimension in the policy-making process, while recognising that the powers to decide on most of the areas concerned lie here.

Dialogue can only be helpful on both sides in the relationship and it is developing alongside the devolution settlement. We make great efforts to ensure that colleagues south of the border are aware of the Scottish dimensions in this and other areas of policy. In my view, devolution has helped us to make our case, as it allows us to take a slightly more distinctive position when that is called for. UK ministers should certainly be aware of and take into account the Scottish dimensions of such issues.

Given all that you have said, I want to look to the future. In our questions and repeatedly in the course of the inquiry, we have become stuck in the loop of not knowing how to respond to something that has not yet happened. Should we not seek to influence what happens rather than simply wait to react to it? Given that you say that there is now improved and increased dialogue between ministers, what is the purpose of that dialogue? Is it to impart information or is it to seek to influence the eventual outcome of the decision-making process at a UK level?

In essence, the purpose of the dialogue is to ensure that any decisions that UK ministers take are taken in full cognisance of the position in Scotland and of their potential impact in Scotland. That includes imparting information. Critically, it includes coming to an agreed understanding of what the factual position is. As I am sure that you have discovered in the course of your inquiry, that is not a straightforward matter and it is something that we are keen to flesh out in our higher education review. It is also important to address that matter with UK colleagues who are making a decision on the areas for which they have responsibility; we want to ensure that in doing that, they are aware of the position here and the potential impact that their decisions might have.

We took evidence from Professor Arthur Midwinter early on. The Executive can expect Barnett consequentials as a result of the plans in the white paper for spending on the endowment in England and, potentially, on increased participation. I want to confirm whether the Executive also expects increased funds as a result.

Yes, we do. If the proposals on top-up fees are implemented as they are currently constituted, they will be implemented in tandem with changes to the English student support system, which will involve fees being paid directly by Government or through the student loans system from 2006. That expenditure will turn into income for Government only as loans are repaid three or four years later. That will therefore involve a significant additional level of central Government public spending on higher education in England and Wales. There will be a direct consequential from that and a percentage will feed through the Barnett formula into additional funding for Scotland.

Do you think that the Executive might also accept that there is a good argument for investing those funds specifically in Scottish higher education to address some of the issues that will result from the introduction of top-up fees south of the border, particularly as those funds are being created because of the proposals in England?

First, I return to the point that I made at the outset, which was that the decisions that the Scottish Executive Cabinet makes on how to deploy its budget have to be informed by the circumstances and the competing claims of different sectors of potential public spending commitments. Therefore, any consequentials—whether they are in health or higher education—are subject to that same approach.

If there is indeed consequential income that relates to higher education spend south of the border, that will add to the budget and the flexibility that ministers have in order to make a response in the next spending review. The more significant the impact of change in the English higher education system, the higher the consequentials will be for Scotland and the more flexibility we will have to address the consequences in our budget-making process.

I have two points, but I might as well pick up the second one first because it relates to the budget consequentials. In paragraph 15 of the Executive's submission to the committee, it is stated clearly that the Executive expects there to be consequentials for the calculation of the Scottish budget as a result of the changes that are proposed in England. As Richard Baker highlighted, the key point is that the funds transfer across to higher education. If I wrote down your comments correctly, you just said that that adds to the flexibility of response for Scottish ministers.

Given that you have mentioned the fact that, at the moment, Scotland enjoys an advantage over England in higher education, and that—as all the opinions that we have heard have suggested—there are likely to be serious consequences for Scotland if the legislation emerges as proposed, surely it would be difficult to defend a situation in which the extra resources coming into the Scottish budget specifically as a result of the additional resources in England did not all go into higher education in Scotland and instead contributed to reversing the benefit that we have at the moment.

We would not want to do anything that would contribute to reversing the benefit that we currently enjoy. In examining the evidence that we gather in the course of our review and from the committee and other sources, we will consider the ways in which we can protect the competitive position of higher education in Scotland. I am sure that you would not expect me to make any commitment on behalf of my colleagues as to the ring fencing of any consequentials for any particular purpose before the spending review.

As I said in response to Richard Baker, the more that we have a sense that there are potential negative effects on the position of the Scottish higher education sector relative to that of the English higher education sector, the more closely colleagues will consider the case for additional spending in that area.

I would not expect you to look that far ahead, although most people would think that it would be reasonable for the minister with responsibility for higher education to argue the case that we are talking about, given the relative position between Scotland and England.

Paragraph 17 of the Executive submission says:

"Due to the way in which student loans are scored as public expenditure, use of the student loans scheme, as presently planned, could be expected to produce consequentials for the Scottish Budget worth around one-third the value of the consequentials of conventional grant funding."

That might be a rather technical point and you might want to ask your officials about it. However, I would like to know what that refers to. Despite reading it and rereading it, I am not clear what it is saying.

It refers to the value in public expenditure terms that is put on money that is provided as a student loan. In other words, the provision of a loan that will be repaid at relatively limited interest rates over a long period is not the same in public spending terms as simple expenditure, but neither is the money 100 per cent recouped. There is a grey area as to what it represents in public spending terms. The figure of around one third is probably a conservative estimate. We would expect consequentials to be affected by that, at least.

Universities Scotland made a couple of comments. You will be aware—as it has been publicised—that it suggested that an investment of around £102 million would be necessary if the legislation were introduced as suggested and came into effect in 2006. The submission from Universities Scotland details that sum and gives further information on it. I accept that we are speaking hypothetically in terms of the specifics, but I think that it is likely that the legislation will be introduced. What observations can you or your officials offer on the view that that is the money that would be required simply to maintain Scotland's position relative to that of England?

You will be aware that that figure has been arrived at with reference to the levels of expenditure at the beginning of the spending review period and to the expenditure of a group of Scandinavian countries within the Organisation for Economic Co-operation and Development. We have not seen all the details of the basis of that calculation and we would be happy to discuss that with Universities Scotland. Although we think that it is appropriate to compare the commitment to higher education of various countries on a per capita funding basis, we do not think that the setting of necessary income levels for future years can be done simply by reference to prior levels, levels in other countries or a kind of global sum.

Earlier, you talked about ministers with responsibility for education fighting for an appropriate level of support for higher education. That will be done on the basis of what we believe is necessary to maintain the quality of Scottish higher education and the competitive edge that it has, rather than setting a global sum and then working backwards. We are happy to discuss that with Universities Scotland. The sum might be similar to the one mentioned, but we cannot say on the basis of what we have seen.

I am surprised that Universities Scotland has not sent you the information that it sent us.

It has sent us the paper, but some of the detail is not clear.

Universities Scotland has put a price on the gap—how that stands up remains to be seen. You mentioned interministerial relations in response to Susan Deacon's question. In discussions with Alan Johnson and Ivan Lewis and their officials, was it made clear that the Scottish Executive expected that Scotland would be worse off if the proposals went through as they stood?

No. We have discussed with ministers what the impacts might be, but we have not tried to prejudge those, because we are not yet in a position to quantify them. Although we have seen interesting figures put forward from various directions, until we know what will go through in UK legislation and how that will be implemented, which universities in England will implement it and what effect that will have, we cannot quantify the impact. It would be difficult to expect others to quantify precisely what the impacts might be. However, we have discussed the consequences for Scotland of changes in England.

It may be difficult to quantify what the effects might be, but the fact is that there will be a deleterious effect on Scottish higher education vis-à-vis the current position which, as you will have noticed from today's edition of The Herald, the University of Glasgow is stressing again. That has been the view of all universities. I find it surprising that you are not willing to say that you know that there will be a negative effect although you do not know the precise effect.

We are having the phase 3 review because we want to pin down the potential impacts. It is far better to substantiate the issues at stake and quantify what might be involved than to raise concerns that we find difficult to substantiate further down the track. We are keen to work with Universities Scotland and other stakeholders to put together a clear body of evidence on which we can base the discussions and lay out the potential impacts on Scottish higher education.

Throughout the inquiry I have been anxious to stress that the provision of tertiary education in Scotland is not confined as significantly to the university sector as it is in England. The further education sector contributes significantly to the total of 51 per cent participation. The demographic mix in our institutions is different, with more adult returners, more part-time students and more degrees being done in further education. I notice that in paragraph 8 of your submission you quote paragraphs 5.7 and 5.10 of the white paper, which are on expansion into foundation degrees, which might be said to be similar to the higher national diploma, which is the norm here. In paragraphs 11 and 12 of your paper you consider what might happen to the total of any increased funding coming in.

I return to Richard Baker's question on the hypothecation of moneys coming through the Barnett formula. If you were minded—and if you won the argument—to have any such moneys hypothecated for higher education, would you include in that tertiary education as a whole in Scotland?

I have not made any commitment to seek hypothecation. I am sure that that is clear from the Official Report, but it is perhaps worth repeating. On plans for the future funding of tertiary education in Scotland, the plans that we have to merge the funding councils for further and higher education indicate the direction of our thinking and our recognition that the strength of our higher education sector and the strength and potential of our further education sector cannot be separated—on the contrary, we want to pull them together.

We have also probably led Europe—we have certainly been among the leading players—in developing the Scottish credit and qualifications framework, which allows different qualifications across the further and higher education and other sectors to be related to one another, in terms of value and importance. I suspect that the Scottish model for that will become at least part of the model for similar efforts that are being made throughout Europe to allow easy transfer between institutions and between the further and higher education sectors.

The funding of higher and further education will be taken forward by a single funding council. This year, the two funding councils produced a joint corporate plan for the first time, and we expect to see increasing coherence between the ways in which we fund higher and further education. In discussions about future funding, we will certainly advocate on behalf of both sectors.

That is what I hoped to hear for the broad range of students who are going through tertiary education. However, there is an issue to do with the support for, sustainment of and improvement in research to enable us to keep our competitive edge. What thinking has the Executive done on introducing funding or support mechanisms to improve our research capacity?

A number of things are already in play. A few moments ago, we talked about liaison with UK colleagues. We have a good deal of regular official dialogue about research provision and funding with the Office of Science and Technology, and 12 per cent of the UK research councils' funding comes to Scotland, which contrasts with our 9 per cent of the UK population. We do well in that respect, but there are no grounds for complacency. Looking ahead, we want to build on those strengths.

In my introductory remarks, I mentioned the intermediary technology institutes that have been designed in collaboration with Scottish Enterprise specifically to identify areas of the economy where we have economic strength, academic excellence and research strength. Communications media, the energy industries and the life sciences are all areas in which we want to increase both the amount of original research and the efficiency with which that research translates into commercial opportunities for Scottish companies and thereby into business and jobs. If we are successful in that, it will foster yet further research in those fields. That is one specific area in which we are using our command of enterprise and lifelong learning to strengthen both and put funding in place for more research.

That prompts a further question. As was pointed out to us when I asked a question, the work of the ITIs will be subject to national and international bidding processes, and there is no guarantee that that work will stay in Scotland. What steps are you taking to ensure that those areas of Scottish research and collaboration that are already world class will continue to be world class while we continue to identify and develop others?

You are right to say that we would not instruct the ITIs to commission research only from Scottish universities. We want them to commission the best research. However, we also want them to enable Scottish universities to be in a position to win that work. They are already talking to Scottish higher education institutions about how those institutions can best relate to the ITIs and take advantage of the investment that we are putting into them.

That is one way in which we are seeking to stimulate the participation of the universities in that new initiative. We are also encouraging universities to talk to one another about areas in which they can collaborate fruitfully, recognise their strengths and build on them. That is the right approach. It is for the universities themselves to identify the research areas in which they are strong and to build on that strength. We would encourage them to do precisely that. We have increased the funding available. For example, SHEFC's research grant funding has gone up by around 20 per cent in the course of the current spending review. That is a significant additional financial resource for Scottish universities to carry out their research.

I want to press the minister about the interface between enterprise, business and the universities. There is an ivory-tower problem. If you have people in a successful business in a high-tech area, or even a successful graduate, those people or that graduate may be contacted by their alma mater asking for a large cheque. However, such people are not going to universities to give lectures or tutorials in their subjects. If they did, that would be a small acorn from which mighty oaks might grow, in the sense that companies might employ research facilities at universities to develop products. What proposals does the Scottish Executive have to address the fundamental problem of lack of communication?

Mr Stone is right to suggest that there is potential—we want to pursue that. Again, we would encourage universities to talk to businesses and industry in their areas to promote that kind of cross-fertilisation. That is the right direction to take.

Is there a problem with academic elitism? People may say, "We don't want those people in here because they might not understand what we're on about." I feel that that is what sometimes happens.

That is not my experience. In recent months, I have visited a number of universities and a number of university spin-out companies and I have been struck by the increasing cross-fertilisation between industry and higher education. I think of the life sciences in Dundee and of the energy industries in Aberdeen, among others. In those areas, the universities seek to work with industry and progressive employers see great advantages in working with universities. For example, a senior member of staff in an academic institution might spend a day or two every month working with a team in a private company on a particular project to carry that project through to fruition. The same company might well have an arrangement to take students during the summer or to give them work experience at other times during the academic year. That allows the company to take advantage of the academic process through which those students are going.

A good deal of that kind of collaboration is going on, although I agree that you can never have too much. We will do anything helpful to encourage it, but a lot is going on already.

I want to raise two final points. The white paper proposes raising the earnings threshold for repaying the student loan to £15,000, but the original Cubie proposal was £25,000. Is £15,000 a sensible figure for Scotland? Do ministers have scope to choose a different figure for Scotland?

I am not sure whether there is scope for that; I think that there is probably not.

Because we use the student loan scheme, which is collected by the Inland Revenue, there is a single threshold for student loans that applies throughout the United Kingdom, no matter where the student is resident or domiciled. The proposed £15,000 will apply throughout the whole UK.

In theory, we can collect income tax at a different basic rate in Scotland, so can we not have a different threshold for student loans?

The 3p-up-or-down principle might not apply quite as directly as you suggest.

I was thinking about administration: this is an administrative problem, rather than a problem of principle. The problem is that it would be administratively too difficult.

You raise an interesting point, but not one that we have pursued thus far. The adjustment of the threshold is an interesting proposition and we will watch it closely. We have not investigated the matter, but I have a funny feeling that you might be about to ask me to.

My second point is more general. We all agree, in comparing Scottish education with education south of the border, that we have a competitive advantage—I think that that was the term that you used—and we all agree that a good higher education sector is essential for the health of the economy. However, given that we have that competitive advantage, a taxpayer might be tempted to ask why the Scottish economy does not perform better than that of the rest of the United Kingdom, rather than not quite so well. Are you concerned that there does not seem to be transference from higher education to the wider economy?

A moment ago, we discussed the intermediary technology institutes, which are designed precisely to address that issue. We want to strengthen the feed-through from academic excellence to the wider economy. The Scottish economy's structural weaknesses have been explored elsewhere and will be again but, in my view, those weaknesses do not include weakness in our academic research base. Historically, there have been serious difficulties with commercial research and development, which—with my enterprise hat on—I am keen to address. It is important that we have direct feed-through from academic research into the commercial sphere but, as I said, that is beginning to happen significantly more.

I agree that there is an issue, but we have taken a number of actions to address it because that feed-through is key to our future economic prosperity. On the structural strengths and weaknesses of the Scottish economy, the heavy industries, which are no longer so prominent, used to provide much of the employment and economic activity in Scotland, but in recent years those things have been provided by sectors such as the energy industry, life sciences and communications media, which also have the potential to add more to the economy. Had we not had academic excellence in those and other areas, our economic position would be significantly less good than it is at present.

When you mentioned that we would receive a copy of the interim report of the Executive's various working groups, I think that you used the word "shortly". Could you be more precise?

The ambition is to have the report with the committee during the first week or two of December—before you go home for Christmas, if you want extra reading.

I thank the minister and his officials for attending.

I apologise for the constant noise from the blinds, which seem to be going up and down. I do not think that that is anything to do with the sunshine—or lack of it—outside.