John Denham - Open University

Introduction

Thank you Vice-Chancellor and good afternoon everyone.

Thank you taking the time and trouble to come to hear what I have to say. I am also pleased to see my two Parliamentary colleagues – Mark Lancaster and Dr Phyllis Starkey - so welcome.

I am here at the invitation of your Chancellor, David, Lord Puttnam. David and I met a few weeks ago to discuss Equivalent or Lower Qualifications – (ELQs). We had a good and positive conversation and whilst not agreeing on every point, we did both agree that the Open University is an enormously valuable institution with a great future ahead of it, and he asked me if I would come to the OU to speak about our plans.

Of course I was delighted to do so.

I will of course talk about ELQs, which have already been the focus of much discussion. But we need to see this debate in the broader context of the challenges that face higher education in the 21st century.

History of the OU

This is an appropriate place to discuss these challenges.

The OU was itself born out of a previous Labour Government and its response to the challenge of higher education.

As Harold Wilson’s memoirs recall: “In March 1963, a study group under the chairmanship of Lord Taylor presented a report on higher education in general and commented on the continuing exclusion of the lower-income groups”.

In Glasgow 6 months later, Wilson made the OU’s primary aim clear when he said that: “there are technicians and technologists who perhaps left school at sixteen or seventeen and who, after two or three years in industry, feel that they could qualify as graduate scientists or technologists”, as well as other groups who had previously been excluded from higher education.

What was the question to which the OU was the answer?

At that time only half of all adult women were in employment, compared to 94 per cent of men. About 60 per cent of all those who did work were in manual jobs. Over half of all employees had no qualifications at all – a figure that had fallen to just 9 per cent by 2006. And only about 5 per cent of young people got a higher education – I say young people, because mature students were in those days very rare indeed – compared to well over 40 per cent of the student population today.

The OU played a significant part in changing our higher education culture for the better. The country was crying out for high quality education to be accessible to a far broader range of people in society. The OU was created to meet that need, and it has done.

And it faced virulent opposition. Iain MacLeod, later Chancellor of the Exchequer, described the very idea of the OU as “blithering nonsense”.

Today, over 200,000 students study with the OU each year. The OU was the first university to demand no prior entry qualifications. Over 40% of OU students do not have qualifications that would gain entry to traditional universities. 80,000 people a year are getting opportunities that would previously have been denied them.
The OU was first Higher Education Institution to make intensive use of new technology to deliver its courses. That approach has allowed over 2 million people to graduate, most of whom would never otherwise have had a higher education.

Over the last 36 years, the Open University has been a key driver of change in the higher education system, and has been the quick to respond to changing social and economic needs.

In addition, the OU tops the National Student Satisfaction survey, and over half of its category areas are assessed as excellent.

Leitch analysis

By any measure, that is a real record of achievement in response to the OU’s birth in the challenges of the 1960s.

So what are the challenges to higher education today?

We live in a rapidly changing world. A global economy. Climate change. Extraordinary new technologies. People, money and knowledge ever more mobile. Huge emerging nations, with justifiably great ambitions.

Britain can only succeed in the world of the future, if we develop the skills of our people to the fullest possible extent, carry out world-class research and scholarship, and apply both knowledge and skills to create an innovative and competitive economy. In turn, raising skills levels helps to build a fairer, more cohesive society by giving ordinary people a greater stake in the community in the form of higher wages, higher aspirations and more stable and secure lives.

But as the Leitch report made clear, real cultural and educational change is needed if we are to fulfil our ambitions for skills, whether to put our economy in the premier league for skills, or for individual achievement.

Leitch set out challenging targets at every level. But today I shall concentrate on higher education.

By 2020, 40 per cent of working-age adults will need to have gained a level 4 qualification. That will be an increase from just under 30 per cent in 2006.

There are twenty million working age adults in this country who do not have a degree level qualification. This challenge means that more than an extra 5 million people will need to go through university by 2020.

And that that challenge must be seen against a background of demographic changes which will mean 100,000 fewer young people a year going through higher education. So there will need to be a massive expansion of higher education opportunities for adults who have never had the chance to go to university before.

We must enable these people to gain the skills they need, to empower them to meet the challenges of an increasingly competitive world, and to ensure no one gets left behind.

This target of 40% does not come, as some have suggested, on tablets of stone from Moses. Rather it comes from a detailed analysis of what is happening in other competitor economies. The OECD’s Education at a Glance report shows that, today, the UK has only the 10th highest proportion of graduates. If we achieve the 40% target by 2020 we will only just sneak into the top quartile of OECD countries.

Of course, some people may want to argue that these other countries are making a huge strategic mistake by over-educating their workforce, and that we will gain competitive advantage by concentrating on a smaller of graduates. But this is not a judgement that I or the Government are prepared to make.

We should also acknowledge, as the CBI says, that quality is important. But the OU, more than any institution, will challenge the view that opening higher education up to people from non-traditional backgrounds or without formal qualifications means an automatic lowering of standards.

From the student point of view, degrees have continued to hold their market premium (one of the highest in the world) throughout the rapid expansion of higher education in recent years. So whilst some will question whether employers want more graduates, many employers are, it seems, prepared to pay a fair price for them.

This expansion of higher education for those who have otherwise missed out is, of course, socially desirable, but it is also economically essential. This is about individual opportunity. It is also about our ability to be economically competitive.

Funding priorities

This shift will pose big challenges for all higher education institutions – reaching out to new students and exploring new and more flexible ways of both delivering and studying.

The question that Lord Leitch raised for Government was how to apply public funding. He said that “The costs of raised ambitions must be shared between government, employers and individuals. Government should be focused on ensuring everyone has the opportunity to build a basic platform of skills, tackling market failures and targeting help where it is needed most.”

Leitch recommended that the Government should provide the bulk of public funding for basic skills and the platform of level 2 skills on which employment is based, to ensure that the education system delivers a highly skills flow of people into the workforce. For level 3, individuals and employers should contribute 50% and the government should pay the rest. At level four and above, individuals and employers should pay the bulk of the additional costs. His justification was that this was fair, given the benefits for individuals and employers who gain higher level skills.

This higher education audience will, I suspect, recognise that these principles are being translated into practice across the further education and skills system. While the Government is ensuring that individuals have the ability to access free training for basic skills and up to their first level 2 (and indeed are creating a new statutory right to train), those over 25 who are training to level three will need to attract some employer co-finance for their training, or contribute themselves.

For first degrees, including Foundation degrees, students are expected to make a contribution towards to costs of fees.

It is worth saying, as an aside, that if employers were asked to set a priority for funding 100% of training costs, they would almost certainly ask us to shift resources from Higher Education to Further Education. It is one of the important responsibilities of Government to strike a fair balance across the education and skills system, and between the different pressures upon us.

As a further aside, let’s also acknowledge that by concentrating the growing investment in skills on work-related activities, public subsidy for informal education – what some call leisure learning, but what I recognise as learning we do because as human beings we seek intellectual challenge and satisfaction – has been reduced.

In the New Year we will be launching a wide-ranging discussion about how such learning can best be promoted in the 21st century. This will of course include those parts of higher education which provide for that demand and need.

Engaging employers

Following that argument, there is a level of scepticism about employer funding. I know your Chancellor, Lord Puttnam, has suffered 35 years of trying to get employers to step up to the plate. But times are changing. We should make two points.

Firstly, it should be quite clear that if we cannot achieve this cultural change, we as a nation will not make the social and economic progress we need to.

All this will require a change of culture which higher education institutions cannot bring about alone. But neither can it be achieved without their active and enthusiastic participation.

Employers are already spending a lot on training. Employers in this country are already spending £2.4 billion on direct course costs, and up to £17.4 billion in total, excluding the wages of employees each year. Investing in higher level skills brings demonstrable benefits to employers through increased productivity and staff retention. It is as wise an investment as any investment in any other part of the business.

This is an opportunity for Higher Education Institutions to capture more of the money that is being spent and to persuade employers that they should invest more in their skills to increase their profits.

Of course, if we want business to invest, then the courses their employees follow must make business sense. Earlier this week Richard Lambert, Director General of the CBI said ‘They’ll pay for a course that meets a particular requirement….but such courses are very unlikely to have the character of a three-year undergraduate degree’.

I broadly agree. There will be cases where employers see a clear business case for funding three year degrees – there always have been – but this is not really where we are looking for the expansion of employer support.

The second point is that many parts of the Higher education system are demonstrating increasing success in providing what employers want and are prepared to pay for.

HEFCE are providing funding for employer co-funded programmes in 15 universities, and there are more in the pipeline.

The University of Durham, for example, is developing its relationship with employers through its involvement in the HEFCE-funded North East Higher Level Skills Pathfinder. Durham has
developed strong links with Newcastle Airport, HBOS and other local companies.

Given the scale of employer investment in training, I think it is quite reasonable to expect Higher Education to gain a larger share by working closely with employers, although the longer term aim must also be to see more employers seeing the value of investing more.

As we have acknowledged, this is a big cultural change for universities and for employers. Sandy Leitch recommended that government funding should be used to stimulate greater private investment. And we are.

Last week, my colleague Bill Rammell announced over 100 million pounds over the next 3 years to support employer co-funded courses. Many Higher Education Institutions are already gearing up to access this money. As Richard Lambert said again ‘No doubt there will be real interest in possibilities of co-funding now being developed by the Government. Business will welcome more incentives to develop courses of this kind.’

This funding is, of course, something that the OU can look to. There is no reason why the OU should be less successful than others in doing this. In fact, in my view, there are many reasons why it should be more successful.

Secondly, HEFCE’s consultation paper on the ELQ change – and I will talk about this in more detail in a moment – proposes to exempt employer co-funded courses from the withdrawal of ELQ funds. This provides clear incentives and challenges for HEIs to increase the number of co-funded courses.

Rationale for ELQ decision

This, then, is the context for our decision to redistribute funding for ELQs. Future economic competitiveness and social justice both argue in favour of public money going first to those who have never before had the chance of a higher education.

This change will enable up to 20,000 full-time equivalent students in the first three years to get their first degree. And let’s be clear about who these people are. It has been suggested that the Government wishes to penalise “the hard working person approaching mid life and seeking to re-enter the workforce and upgrade her skills” in favour of 18 –year olds.

It should be clear that, as the potential pool of young undergraduates shrinks, the expansion of new opportunities will be for the hard working person seeking to upgrade her skills, but with those who have never had the chance of higher education coming first. These additional students are certainly not necessarily 18 year olds doing a traditional full time undergraduate degree. I hope they will be those, who, in Harold Wilson’s words “for one reason or another, have not been able to take advantage of higher education”. Exactly the sort of people to whom we should be extending opportunity.

It’s important to be plain about what has been proposed on ELQs.

We have asked HEFCE to redistribute – not cut - £100m of core teaching grant over 3 years. This is under a third of the money we currently spend on ELQs.

That money will not be lost to the system. It will be redirected to fund more university places for first-time learners. Enough, incidentally, to fill a whole university.

HEFCE are currently consulting on how this re-prioritisation should take place.

But their consultation does reflect a number of principles that are important to Ministers.

Progression is important.

So HEFCE proposes to maintain support for people who embark upon higher education – for example a through a foundation degree, an HND or HNC – to convert their qualification to full honours.

Across the higher education system, extra support is given to strategic or vulnerable courses. We are often urged to go further. The CBI for example, thinks we should subsidise the fees of physics students.

So HEFCE proposes to support ELQs in subjects such as science, maths, engineering and modern languages.

The importance of re-training is understood. Whilst the priority may be for those who have never had these chance, employer co-funded courses will continue to receive taxpayer support, as will vocationally orientated Foundation Degrees, which are increasing the qualification of choice those wanting to re-train.

For other sorts of courses, it will continue to be open to individuals to invest in their personal careers, as many have already done.

Those with first degrees do not have to study at an equivalent or lower level than they already have. They can study for a masters or another postgraduate qualification, and they may be able to access a career development loan of up to £8,000 to support them.

Both Ministers and HEFCE recognise the challenge to many HEIs of changing their ways of working to respond to the new priorities. It will take time to change and to develop new partnerships. The transition needs to be carefully managed. Institutions need proper protection during this period.

First, HEFCE proposes to raise the targeted allocation for part time students by £20m. Their proposal is intended to maintain part-time courses which may otherwise be affected.

Perhaps most important, the transition proposals will ensure that no institution loses cash on its 2007-08 baseline over the three-year period – whether or not it successfully bids for a single additional student – and holds open the possibility of continued mitigation beyond this CSR period.

This does mean a change for the business plans for every institution and a more challenging change for some. This is why we recognise the need for a genuine consultation on the implementation of the policy. It is obviously important that we judge the level and pace of change correctly, and we will be looking very carefully at the submissions to HEFCE, and HEFCE’s report on them, in considering the detail of how we go forward.

Objections to change

The consultation closed last Friday, but main lines of objection to the new priority have been clear for some time.

First, it is argued that the current system works well, providing valued opportunities for many individuals and that Government has no role in shaping how public money is spent on in the education system. There are two variations on this argument: one asks what role government should play in prioritising people or courses in higher education, and the other asks whether it is fair.

In response to the first, I’m afraid setting strategic priorities to manage a strong and stable economy, and to foster a fair and just society is exactly what governments do.

In response to the second, the choice we have is between spending money on people who have already benefited from higher education and spending it on those who have not even had the chance. On average, it costs the taxpayer about £20,000 to support a student to get a first degree. Getting a second degree costs a further £12,000 on average, adding about 15% to the £80,000 it costs to educate someone up to the age of 21.

Within those constraints, I believe that there is only one choice that a responsible Government can make. That is the one we have made.

Second, there are those who are concerned that by making a change in policy, we will harm provision for those we’re actually trying to prioritise.

The Open University is one such institution that could potentially be affected by the ELQ decision. The underlying share of the total savings which is attributable to the Open University is, in real terms, roughly about £4 million next year, about £8 million in the year after that and about £12 million in 2010.

But all of this money will be recycled as teaching grant. And as I have said, HEFCE has promised that institutions like the Open University will not lose grant in cash terms.

Assuming that OU students continue to study part-time at about the same intensity as now, it will be able to recoup what it might lose, and more, by attracting another 3,000 or so first-time students in each of the next three years.

Third, there are those who argue that the change would run counter to the very aims set out by Leitch, by obstructing second-chance higher education.

But the central message of Leitch is that we need to increase the number of people with higher level skills radically. We’d actually be moving away from that imperative if we continued to prioritise those who already have such skills over those who don’t. Further, he recommended government prioritised most money lower down the skills ladder, on lower level skills.

Conclusion

Perhaps misleadingly today’s title is ‘The Future of the Open University’. But, of course, it is not for me to set out how you respond to the challenges facing your institution.

It is for me to say that I have every confidence in your abilities to do so. I do believe that what today is seen as at best, unnecessary, and at worst a daunting change in policy, will in future be seen as an opportunity.

The support for change is there. The measures on which HEFCE have consulted are designed to support the transition. And we will consider carefully the detail of the response we get from HEFCE on how it should be managed.

There are some issues that are specific to your institution. We recognise that the OU has piloted a number of schemes that are central to the Government’s agenda. Your widening participation pilot which works with parents and grandparents. Your work on making online materials available to learners. The higher education opportunities you provide for disabled students. I think there are opportunities here to work with HEFCE to review how the funding model can better and more explicitly reward these valuable activities.

Other institutions that have a significant level of ELQs are working with HEFCE to explore new ways of working, even if they do not necessarily share our priorities. The support is open to you.

But perhaps we should return to Harold Wilson, citied at the beginning, who said:

“He who rejects change is the architect of decay. The only human institution that rejects progress is the cemetery”.

The institution he helped found to bring higher education to millions of people for the first time is again being asked to do so, with renewed urgency, to meet the new challenges of the 21st century. And, to maintain, in new ways and working with new partners, your other essential role of enabling individuals to gain new skills to meet the needs of a changing economy and society.

I believe that you can meet those challenges.

Thank you.