Our universities can only compete if they are set free from state control

Shirley Williams said in the January issue of Prospect that there are no first-rate universities left in Britain – a taunt that drew from Universities UK the response that this was an "absurd" suggestion. More as to whether her charge is justified in a moment – the danger that our universities might slip down the global league table is important background to the White Paper on higher education, published today.

Stand back for a moment and look at what has been happening to higher education, not just here but in just about every developed country in the world.

First, it is a huge growth industry, with the proportion of school-leavers having some kind of tertiary education rising everywhere. There is some criticism of our own government's target to get 50 per cent of school leavers into tertiary education, which would be high by world standards. But exactly the same pattern is evident elsewhere.

Second, it has gone from being largely a domestic industry to become increasingly a global one. At a postgraduate level it is global. Even at an undergraduate level it is becoming more international, with distance learning extending the range of students who can gain a "foreign" qualification. Britain, with the United States and the English-speaking world, has become particularly global in its outlook – and revenues.

These two seismic changes would be bound to put a strain on any industry, but they have put particular strain on our universities because of their funding system, which relies heavily on the state. A generation ago, when less than 10 per cent of school-leavers went to university, there was an implicit bargain between the middle-class taxpayers whose children dominated university admissions. They would pay what were by world standards very high tax rates but their children would get a high-quality university education for free. Because the proportion of school-leavers going to university was so small, the deal more or less worked.

But now it doesn't work nearly so well. If you double the number of students and hold spending level, it does not take a degree in higher mathematics to figure out that the spending per student will halve. That is roughly what has happened. Top-up fees, loans, students' part-time jobs – and cross dons – are all reflections of the effect of this inexorable financial pressure.

Meanwhile, our universities have to compete in a global marketplace as never before. Sometime this gives them new opportunities to expand. For example, Umist confers degrees on those Institute of Bankers students from all over the world who do the additional work over and above that required for the professional banking qualification. The result is that young people, including many in developing countries, have a better education – and a British university degree – at a much lower cost.

On the other hand, it lays British universities open to international competition – and to that charge of Shirley Williams. Is she right? If so, it would be alarming.

There is a good response in the February Prospect, just out now. It is a letter from Alan Ryan, Warden of New College, Oxford (and regular contributor to The Independent), who, interestingly, is spending a year's sabbatical at Stanford. Professor Ryan thinks she is wrong, but the charge is not absurd. There are, he believes, two things Oxbridge does better than anywhere else: undergraduate education and "a less mechanical and more attentive doctoral education than in the US", particularly in the arts and social sciences. But he acknowledges that we cannot "spend a fifth as much as Stanford, Harvard and Yale on high-end scientific research and still hope to give them a run for their money". In that sense, Shirley Williams is right.

There will be several tests that we should apply to the proposals in the new White Paper. One is whether it indeed improves access to university education for clever students from homes where there is little money and/or no tradition of a university education. Individuals benefit hugely from a university education in financial as well as human terms. We know that. But we have not created a "needs-blind" admissions policy or done nearly enough to tackle the social barriers that stop many young people from going to university.

Creating that needs-blind access is not something that a government can do by the stroke of the pen. It can legislate and it can bully. But ultimately the will has to come from the people who run the universities themselves. They have to perceive that it is in their self-interest to compete for the best students, recognising that "best" means variety and breadth, not just a choice on the narrow criteria they have often applied. And they have to find ways of funding this policy themselves, rather than relying on the government of the day.

Another test when accessing the White Paper is whether the scale of the debt with which students will leave university is acceptable. My own view is that if British people are prepared to borrow the equivalent of over 6 per cent of their income to improve their living standards – as they did in the latter part of last year – we should not be too concerned about people borrowing to improve their education standards. Buying more education is a real investment in that it brings real revenues in higher earnings. Buying a BMW may be more fun, but it ain't investment: it is consumption.

But surely the most important criterion for judging the Government's plans is whether they really improve the quality of our universities – and not just the Oxbridge end of the market, but the whole higher education industry.

That must mean both more money and more flexibility in applying it. There has to be more money. There is no question about that. But even more importantly, power has to go down to the level where appropriate decisions can be made. Better that universities make their own mistakes than have the mistakes made for them by the minister of education of the day.

Two final points: longevity and luck.

One of the astounding things about higher education establishments is how long they have been around. I always like the fact that "New" College was founded in 1379. So universities have to plan for the very long-term,. That surely means cultivating a fierce sense of independence.

They have to plan to survive bad policy, and governments that are inept or worse. Their prime responsibility is to their students. By serving them well, they build a base of goodwill (and, ahem, endowments) that will help secure their future. They are not just commercial entities, for they have wider responsibility than companies that have focus on the profit and loss. But without commercial success they cannot hope to achieve their wider objectives.

The other astounding feature of British universities is their good fortune in operating in an English-speaking world. America will be first choice for the world's top talent and the country benefits hugely from that. But we are a clear number two and we should not allow that gap, insofar as it exists, to widen any further.