The UK must replicate Germany's "symbiotic relationship" between manufacturers and universities to secure economic growth, according to the founding chair of the Warwick Manufacturing Group.

Lord Bhattacharyya of Moseley urged universities to "understand you can't just say, 'We'll get more foreign students, we'll increase fees'...The custodians of the knowledge base should be a critical part of growth in the UK, not in other countries."

The Labour peer spoke to Times Higher Education after making a speech in the House of Lords that called for an industrial bank to support new manufacturing products from British small- and medium-sized companies, and for government to use its procurement to support those new products.

Lord Bhattacharyya said WMG's activity would create jobs "in the supplier base" in the coming years, in addition to the benefits from Jaguar Land Rover's decision to co-locate its ?100-million-a-year research and development division at WMG.

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"You can see it's an integrated strategy," he said. "Now we [the UK as a whole] used to have that to some extent, where ICI used to work with Imperial College London, but over a period of time - because of short-termism and more and more competition - we lost our way.

"We need to get it back and become a great manufacturing nation. We can't actually grow if manufacturing is just 11 per cent [of the UK economy]. We can't grow any more with the City [of London]."

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Vince Cable, the business secretary, put forward a similar message in a recent newspaper article in which he called for an end to the "whingeing of the City" and a shift to "advanced manufacturing, creative industries, higher education and professional services - and therefore less reliance on banking - from London to provincial Britain".

Lord Bhattacharyya said that growth in nations such as Germany was down to manufacturing.

"What is so crucial is that they have such close symbiotic relationships [between manufacturers and universities]," he added. "Look at Siemens with the University of Berlin, BMW with Munich, Mercedes with Stuttgart."

He also highlighted the university links of US companies such as Microsoft and Google.

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The UK has problems with the skills base in its companies and the implementation of research and development, Lord Bhattacharyya argued.

"Therefore we really need to have a very symbiotic relationship between companies and universities", with a particular focus on the "huge tail" of below-par UK companies to achieve economic growth.

He also criticised UK research funding policy for making "no division between applied sciences and pure sciences", and he said that applied science should be judged on its economic impact, not "enormously on citations" as now.

"When I talk abroad about citations in applied science, they just laugh," Lord Bhattacharyya said.

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john.morgan@tsleducation.com.