Funding is at the heart of the debate on the future of higher education. Lecturer's leader David Triesman, is right to say that new sources of funding have to be found to enable the system to expand to meet demand. By doing so, he has filled the silence on funding in the Association of University Teachers' new document Higher education - preparing the way for the 21st century.

There is no easy answer to Mr Triesman's question. But he is wrong to propose an employers' user charge. Employers already pay twice for higher education, first through their contribution to general taxation - business taxes which account for more than half of the Exchequer's tax income - and second through the premium on graduate salaries. To add a third cost through a user charge would be folly. It would send the wrong signals about the use of higher skills particularly in small firms, and would not cut graduate unemployment. The idea is a throwback to the 1960s when any problem facing the economy could be solved by asking business to pay.

If not via a user charge, where shall we find the extra money? This question involves major issues of public policy. The CBI education and training committee have called on the Government to issue a Green Paper on the funding of higher and further education to facilitate an informed public debate.

Our own proposals are set in the context of the target in our document Thinking Ahead, published last year, that 40 per cent of young people should graduate from higher education in the year 2000. (This target was achievable if Government had acted last year - it is probably not now). There are four main beneficiaries of higher education who may be expected to invest in the system: Government, employers, institutions, and students. If we were to achieve a 40 per cent graduation target by the year 2000, we estimated that about an extra Pounds 3 billion needs to be found from them.

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It is unrealistic to expect Government spending on higher education to increase in line with the demand from individuals. The pressure on the Treasury to reduce the public sector borrowing requirement is strong and so it should be. We have recommended accordingly that public funding for higher education should only increase in line with growth in gross domestic product.

Employers already contribute a great deal in terms of research, consultancy, help with teaching costs and student support. The Council for Industry and Higher Education has estimated that this amounts to about Pounds 400 million, greater than in most industrialised countries. This expenditure will increase as the number of employees learning in universities grows and the importance of graduate-level skills increases.

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Much of the credit for the expansion of higher education should go to institutions who have found creative ways to deliver degrees at an ever lower unit cost. We look to institutions to continue to find more imaginative ways to deliver courses, in particular using new IT, to ensure that the quality of teaching and learning is maintained and improved.

Students benefit from higher education. At the introduction of the student loan scheme in 1988 the annual return to graduates for their investment at university was estimated to be 7 per cent. More recent estimates range up to 25 per cent. Unemployment rates are much lower for graduates, standing at 4.2 per cent compared to 9.4 per cent for the population as a whole in l992. Despite this evidence, the United Kingdom asks students to invest comparatively little. In terms of student maintenance in 1989, the UK provided to the individual student 12 times as much as Germany and three times as much as France.

Every effort should be made to bridge the funding gap without looking to students to make a contribution to their tuition fees. We have suggested that the distribution of grants and loans be more closely targeted. It makes no sense for the Government to continue funding the living costs of students whose parents could afford to pay more, if this means denying potential students a place.

Grants should go only to the poorest students. Loans should be available to those whose parents can meet some but not all of their living costs. Those students whose parents can afford their living costs should look solely to them for support.

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The Government should then increase grants to the poorest students. These would encourage the higher participation of such students currently under-represented, as the AUT has emphasised. This would have enabled the system to expand to meet the 40 per cent graduation target. At this point student contributions to their tuition fees would be at the top of the agenda. The Green Paper also needs to address this scenario.

It is important that the other stakeholders in higher education state their views. Policy statements are due from the NUS and the Labour Party. I understand that the AUT council is also reviewing its funding policy and I look forward to its constructive contribution. Finally I hope that the Green Paper will emerge within the next year.

Dominic Cadbury is chairman of the CBI education and training committee.