It was once a truth universally acknowledged that international students are a good thing. As the Commonwealth succeeded the Empire, drawing overseas students to study at British universities seemed manifestly in the national interest. What better way to underpin alliances than to have alumni of UK institutions prominent among political, cultural and business leaders on every continent?

The case seemed so strong that, until the 1980s, overseas student costs were heavily subsidised. When Margaret Thatcher abolished this funding, there was acute disquiet in the Foreign and Commonwealth Office and beyond at the long-term loss of influence likely to follow. Those fears were not entirely unfounded - numbers did temporarily dip - but during the 1990s a rise set in and successive governments strove to accelerate it.

Higher education became an increasingly prominent part of bilateral diplomacy. Steady work by the Foreign Office, the British Council and universities themselves was interspersed with eye-catching measures such as the launch of the Prime Minister's Initiative for International Education under Tony Blair in 2006, aimed at achieving a step change in Indian collaboration and student flows. From around 30,000 in the early 1990s, first-year full-time enrolments from outside the European Union rose to around 66,000 in 2001 and to 162,000 by 2010 - a more than fivefold increase.

Besides the spread of English, the growth in numbers reflected, above all, the reputation of UK universities. According to the most recent Times Higher Education World University Rankings, we boast one in seven of the world's top 200 universities, some several centuries old, others - the universities of York and Warwick, East Anglia and Sussex - only just completing their fifth decade.

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How have we stolen a march? Sustained academic freedom and institutional autonomy have been essential. So too has been a research ethos that nurtures intellectual independence, problematises every proposition and instils the most advanced human understanding while bringing home its provisional nature. But underpinning all has been an openness to international currents, cultures and collaboration, personified by the infusion of staff and students from across the globe.

The flow of international students has become increasingly important in its own right. Given the strict controls on home and EU undergraduate numbers, undergraduates from outside the EU have been key to building critical mass. In science, technology, engineering and mathematics at all levels, and in economics at graduate level, these international students have kept courses alive where home and EU demand has been dangerously weak. They make up more than a third of full-time postgraduate research students. More generally, the overseas presence has enabled us to internationalise the culture on campus and give UK students at least a taste of what so many are reluctant to experience by studying abroad.

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Students from outside the EU today make up more than 11 per cent of the total numbers enrolled on UK higher education courses. When EU students from outside the UK are included, that proportion grows to 15 per cent, or three students in 20. The list of institutions with the highest proportions of international students reads like a roll of honour: Imperial College London (40 per cent), University College London (38 per cent), and the universities of Cambridge (30 per cent), Edinburgh (28 per cent), Oxford ( per cent) and Manchester (26 per cent).

The fees paid by non-EU students reached ?2.5 billion in 2009-10. As Times Higher Education's recent analysis of university finances showed ("Surplus value", 12 April), international students have become integral to the balance sheet of UK universities and are now essential to their stability.

This success has also made UK higher education an increasingly significant "export". When overseas fees are combined with associated off-campus expenditure, the UK benefits by more than ?5 billion a year. Provided our share holds up in what is a fast-growing market, this figure is set to double by 2025.

As the Migration Advisory Committee at the É«ºÐÖ±²¥ Office recognises, qualitative "soft power" factors are also of central importance. A recent report by the Department for Business, Innovation and Skills, for example, notes that 78 per cent of international students graduating in 2010 said they wished to build links with UK organisations and businesses.

But the hard numbers are striking enough: a 2009-10 case study by the economic forecasting consultancy Oxford Economics on the impact of the University of Exeter's 4,000 international students suggests that for every 10 international students, about six jobs are supported in the region. Here is a real source of exports, growth and job creation.

Yet a shadow has been cast over this landscape. Not because of any reappraisal of where the national interest lies: much of the government seems as robust in its support as its predecessors. Rather, because university students have become entangled in the way immigration has become a subject of debate in the UK.

Immigration is a vital electoral issue. Opinion polls and activists in every political party report high levels of public concern and frustration. A large majority of the electorate evidently wishes immigration to be reduced. Particularly popular would be reductions in unskilled workers, illegal immigrants, extended family members and asylum seekers.

Students, in so far as they are regarded as immigrants at all, cause least concern. The vast majority leave after completing their studies. A É«ºÐÖ±²¥ Office study of the cohort entering in 2004 found that after five years, only 3 per cent had settled. Concern only rises if there is doubt that students are visa-compliant and duly exit when their visas expire. But it is acknowledged by all sides and underlined by the É«ºÐÖ±²¥ Office's own detailed analysis that those with visas sponsored by universities have excellent standards of compliance.

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Yet public policy has brought non-EU university students centre stage. During the last general election, David Cameron, the Conservative leader, pointed to the recent upward trend in annual "net migration". This is the difference each year between the inflow and the outflow of "migrants", defined (in line with United Nations recommendations on international statistics) as those resident more than a year in a new country. He cited the Office for National Statistics' International Passenger Survey (IPS) on which UK migration statistics are based. Until 1998, annual "net migration" was below 80,000. Since then, it has been above 140,000 and latterly above 200,000. Cameron promised to cut it from what, with poetic licence, he called the hundreds of thousands to "tens of thousands", within the lifetime of this Parliament. Under the coalition government, the É«ºÐÖ±²¥ Office has been trying to deliver that target.

Since UK and other EU citizens can move in and out without visas, the government has decided to hope for near balance on those numbers and focus attention on non-EU migrants instead. Non-EU entry via the work route has been made harder and subject to numerical caps; new restrictions are now to govern non-EU entry via the family route. But the bulk of net migration reported by the IPS is not on these routes but via the study route - Tier 4 of the points-based system for visas.

Just over a year ago, the É«ºÐÖ±²¥ Office proposed a raft of changes to Tier 4. The main purpose proclaimed was thoroughly laudable: to eliminate abuse by bogus colleges and applicants whose real motive was not to study but to work in the UK. Unfortunately, however, many of the Tier 4 proposals seemed designed to cut numbers rather than abuse and included measures that directly threatened university recruitment.

In the event, the É«ºÐÖ±²¥ Office listened to Universities UK, other ministries and vigorous intervention by backbenchers, and adjusted its proposals to take more account of university needs. But the overall presentation as well as the detail - notably in the cuts to post-study work - meant that damage has been, and continues to be, done.

Despite reassurances by ministers in BIS and by Cameron in the Commons that there are no limits on Tier 4 numbers and that university-sponsored students are heartily welcome, uncertainty within the sector about government intentions and suspicion of a secret agenda to rein back university recruitment continue unabated.

Abroad, there has been an abrupt shift in perceptions of the UK. Foreign media coverage has been grim. There is widespread evidence that in key markets, growth in applications and recruitment has been hit hard and in some there has been absolute decline.

Ministers protest that foreign reaction is based on a misunderstanding. Our embassies and the British Council do their best to restore the UK's welcoming reputation. But there is a stark contrast between the redoubled efforts of Australia, the US, Canada and a growing number of European countries to attract foreign university students and the frosty image projected from Britain. Worse still, there are mutually reinforcing perceptions that the UK is no longer welcoming either to non-EU students or to non-EU academics.

Offence is deepest where Anglophile currents were once strongest. Without an adjustment, permanent alienation looks likely in India, one of two 21st-century giants whose importance to our country and the world is hard to exaggerate.

And there is a severe risk that the damage will deepen. For net migration as measured by the IPS remains stubborn. It has increased rather than declined since 2009, reaching 250,000 in the year to June 2011. It may fall back. The É«ºÐÖ±²¥ Office is confident that applications for Tier 4 visas will drop sharply following the changes made - and it has become clear that the methods chosen to eliminate abuse have taken a toll on thoroughly legitimate language schools and non-university providers. But the prospects of delivering the "tens of thousands" pledge look poor.

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This puts university-sponsored students in the direct line of fire. The number of full-time non-EU students has been rising annually, and they are now a clear majority of Tier 4 entrants. The logic of the government's position points inexorably not only to interrupting the growth but to reversing it.

Thus there is what the É«ºÐÖ±²¥ Office's Migration Advisory Committee calls an "inherent tension in government objectives". The government's wish to cut "net migration" is at odds with its support for university recruitment. And on that tension turns the future prospects of what is a vital cultural asset, export and source of job creation.

To overcome the contradiction, one clear solution is to lift university-sponsored students out of the net migration calculation. The case for doing so is overwhelming. These "migrants" are distinct. They are, as public policy in other countries recognises, temporary. They are known to have excellent standards of visa compliance. And, in spite of the É«ºÐÖ±²¥ Office, the government as a whole commits considerable resources to encouraging them to come to the UK.

The data needed to separate them is readily available. The Higher Education Statistics Agency collects from its members meticulous detail on each non-EU student joining and completing a higher education course. Every university records student visa start- and end-dates, as well as passport numbers. From this it is possible to derive and publish annual estimates of both the inflow and the outflow of non-EU students who come to the UK for university study.

While influential figures in both governing parties are supportive of the proposal, the É«ºÐÖ±²¥ Office is nervous. A spokeswoman has talked of the need to avoid "fiddling the statistics". No doubt this reflects ministerial fear that any change to the net migration calculation might arouse public distrust. The fear is misplaced. It underrates the scope for raising the level of public debate. The pressure group MigrationWatch UK, often taken to be the fiercest immigration guard dog, repeatedly emphasises that legitimate international students are not an immigration problem.

Far from fiddling the figures, the data on this subset will be vastly more precise than the crude estimates derived from the IPS. The IPS relies on interviews with a small sample of travellers and its limitations are many. It was not conceived or introduced to compile migration statistics, and successive parliamentary committees have found it simply "not fit for purpose" in respect of those figures. It has a particularly poor record in counting the outflow of students. When the 2001 census revealed that previous estimates had greatly overstated the size of the British population, the IPS was discovered to be the single greatest source of the error.

The post-IPS era is approaching. A new É«ºÐÖ±²¥ Office system, "e-Borders", will soon start to deliver infinitely more accurate migration figures. It will gather comprehensive data, at last providing the individual entry and exit information that Parliament has long called for. And an ideal pilot to test the new e-Borders-based migration statistics - and to pin down the IPS' failure to count student outflow - is offered by Hesa's data on non-EU university students.

Britain needs this subset lifted out of the net calculation. The move, for which UUK will press in the coming weeks, will raise public awareness of differing trends in temporary and permanent migration. It will focus attention on the migrant categories that are of real public concern. It will make it possible to reverse negative international publicity and diplomatic damage. It will help to protect what has become a vital national interest: our extraordinary competitive advantage in university education.

Border skirmishes: How the student visa battle has developed

May 2010

The Conservative-Liberal Democrat coalition government is formed. Both parties made pre-election promises to tackle immigration. In its manifesto, the Conservative Party vowed to "take net migration back to the levels of the 1990s - tens of thousands a year, not hundreds of thousands". The document described the student visa system as "the biggest weakness in our border controls". Meanwhile, the Liberal Democrats promised to tackle an immigration system that was "in chaos after decades of incompetent management".

September 2010

Immigration minister Damian Green describes the number of foreign students allowed into the UK as "unsustainable". He says that only half of student visas are issued for university courses and argues that sub-degree courses need to be examined closely.

November 2010

Theresa May, the home secretary, pledges to crack down on immigration abuse in her first major speech on immigration policy. This includes cutting down on non-European Union migrants and implementing a "more robust" student visa system. "While we need to preserve our world-class universities, we need to stop abuses," she says.

December 2010

A consultation on proposals to tighten entry requirements for non-EU students is published. The plans include reducing the number of people coming to the UK to study below degree level, introducing a tougher English-language requirement, ensuring that students wishing to extend their studies show evidence of academic progression, limiting students' entitlements to work and their ability to bring in dependants and changing the accreditation process for education providers, alongside more rigorous inspections.

January 2011

Vice-chancellors describe the proposals as "damaging and dangerous" and warn of possible "catastrophic effects" if the changes are implemented.

February 2011

Office for National Statistics figures suggest that net migration has risen 36 per cent in the year ended June 2010.

March 2011

May announces changes to the student visa system, including the closure of the post-study work route that gives students an opportunity to stay on in the UK after graduation, a tightening of the accreditation and inspection regime for colleges, a rise in the standard of English required for overseas students enrolling on degree courses and a five-year time limit on student visas for most university students. Universities UK says it is pleased that the government has responded to many of its concerns. "Although the post-study work mechanism is to be closed, the government has decided to retain the right of international students to work for a period of time in the UK after graduation in graduate-level jobs. This is critically important in attracting international students," says Nicola Dandridge, the organisation's chief executive.

April 2011

The Migration Observatory at the University of Oxford highlights the limited data on people leaving the country and points out "substantial discrepancies" between the International Passenger Survey, visa data and passenger entry data, which provide information about people entering the UK.

June 2011

The observatory predicts that the coalition is unlikely to deliver on its promises to cut net migration to the "tens of thousands" by the end of this Parliament under current policies.

November 2011

The government reveals that almost 500 independent institutions have been banned from recruiting abroad under the new regulations, with hundreds failing to sign up for the new inspection system.

February 2012

A survey commissioned by UUK finds that the public undervalues the financial worth of overseas students.

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