Universities must accept "cultural change" and embrace a period of "experimentation" as businesses become more heavily involved in setting the higher education agenda, the Government said this week.

In the annual grant letter to the Higher Education Funding Council for England, John Denham, the Universities Secretary, set out his "ambitious and groundbreaking" plans for the sector.

The rise of degrees part-funded by employers and tailored to their individual needs; part-time and flexible courses; "compressed" two-year honours degrees; and vocational foundation degrees are the way to meet the agenda, he said.

Mr Denham added that there should be 5,000 degree places partly funded by employers in 2008-09, 10,000 the following year, and 20,000 in three years.

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But even if these targets were met, there would still be "a long way to go," Mr Denham said. "We will look for more substantial growth in this kind of provision from 2011. This in part will mean a new approach to funding ... But the need for innovation and cultural change goes well beyond that.

"Providers will need a growing appreciation of the requirements of employers ... to provide and adapt courses swiftly in response to demand (and) to offer provision tailored to individual businesses," Mr Denham said.

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Acknowledging that the next three years would be a period of "controlled experimentation", he said that there should be 100,000 students on two-year foundation degrees by 2010, and more two-year honours degrees.

The minister acknowledged that the agenda could have far-reaching implications for university staffing, and he said that he had asked Hefce to "look at the labour market implications of the strong growth that we expect in part-time study for students already in the workplace, designed as well as funded by employers and delivered flexibly and rapidly".

Vice-chancellors welcomed the Government's commitment to maintaining the unit of public funding in real terms until at least 2010-11 to prevent a repeat of what Mr Denham described as "the mistakes of the early 1990s, when student numbers were allowed to grow unsustainably and without proper financial support".

He said there was core funding for 60,000 new university places by 2010-11, but Baroness Warwick, chief executive of Universities UK, warned that 20,000 of these would be paid for by phasing out ?100 million currently spent on funding students who take degree-equivalent or lower level qualifications.

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john.gill@tsleducation.co.uk

The Government has made minor concessions over a decision to cut ?100 million in funding to students studying for second degrees, but it still plans to press ahead with the policy.

Speaking to the Innovation, Universities and Skills Select Committee, Bill Rammell, the Higher Education Minister, confirmed that more money would be set aside to mitigate the impact on part-time courses: ?30 million, up from ?20 million.

He will also seek an annual review of subjects exempted from the policy, and he has agreed to assess immediately the impact of cuts on theology courses.

About three quarters of the 1,500 people studying to become Church of England clergy at any one time hold a degree. They would be hit by the plans, which affect those seeking equivalent or lower qualifications.

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Phil Willis, Liberal Democrat MP and the chair of the committee, said the inquiry into the decision had received 478 responses, 470 of them critical. In a letter to Mr Willis after the evidence session, Mr Rammell said: "We are definitely going to go ahead with this policy from September 2008. We are not going to remit this issue to the (2009) fees commission."