Last year a group of academics, businessmen, researchers, policy wonks and Members of Parliament met over several months under the auspices of the Conservative Political Centre to consider the future of British universities. We asked first what does a government in a free society expect to receive from its funding of higher education? We agreed that a well-educated and better qualified population would be better able to sustain a flourishing economy. But we concluded that our universities should also contribute to the enrichment of the values of our civilised society and to the transmission of a shared culture.

We reviewed the rapid growth of student numbers in recent years and concluded that the achievement of a 30 per cent participation level was one of the Government's most important achievements. There is a moratorium on further growth but we believe that the rapid increase in the numbers staying on in full-time post-16 education - now over 60 per cent - will inevitably lead to an ever greater demand.

At the forefront of our deliberations, influencing all of our decisions was the central issue of quality control and maintaining and raising standards. Our recommendations to the Government fall into two broad areas: how to improve the funding system and how to encourage choice and diversity.

On funding, the policy group agrees that the erosion in real terms in the per capita unit of funding of students (down per cent in the past five years) must be halted and that extra resources are needed for further expansion and for maintaining and enhancing quality. We doubt that the taxpayer will want to fund this increase and conclude that this must be found from within the existing higher education budget.

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Although we noted that the regulations allow universities to charge top-up fees we believe that the existing system of free tuition should be maintained for all students and for all institutions. We are therefore against the proposal of the Committee of Vice Chancellors and Principals to levy a Pounds 300 entrance fee.

We conclude that the only source for additional funding would be from the student loan and maintenance scheme which by 1997/98 will cost taxpayers Pounds 1.8 billion annually, comprising Pounds 893 million for student loans net of principal repayment and Pounds 950 million for maintenance grants. The nearly Pounds 2 billion pounds for maintenance and loans represents nearly a third of the total Pounds 7 billion of Government funding for higher education.

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The current policy is to reduce grants so that they meet 50 per cent of maintenance costs for those eligible with loans funded by the Treasury covering the balance. We recommend that the student loan system should be immediately privatised with the banks supplying the loan capital, thus saving Pounds 900 million a year in public funds. This should be done by arranging for students to pay both interest and repayment of capital through a surcharge on their national insurance contributions or PAYE with a threshold minimum income. This would not be a graduate tax since payments would cease when the loan had been repaid. The banks would provide the funds for the loans so that the capital would not be part of the PSBR. We do not accept that using the Government to collect the debts would be an indirect guarantee since the Government's responsibility would be limited to that of a debt collector. If a student ceased to be employed or earned a salary less than the minimum threshold no payment would be made by the Government and the banks would not receive their payment.

The Government could of course still choose to subsidise the interest rates charged by the banks and even to provide grants to students going into high priority but low paid jobs such as nursing or teaching. The annual savings of Pounds 900 million should be primarily used to increase the per capita funding to universities.

Concurrent with this change, the existing loans of the Student Loans Company, which total Pounds 1.7 billion, should be securitised even if this required a sale at a discount from their normal value. This would produce a substantial one-off capital repayment to the Treasury. We would again recommend that this be used to pay for increased capital support to universities.

We would also recommend that on a phased basis the existing maintenance grant be replaced with a 100 per cent privatised loan scheme saving a further Pounds 950 million a year but with exceptions being made for particular categories of student.

At first sight the idea of announcing the end of the maintenance grant may look politically dangerous but it need not be so if sensibly handled. A high proportion of students are finding it difficult to live on their maintenance package - the grant is not generous and the loan is limited to Pounds 6,000 over the three years. A privatised loan scheme would have no limit other than the perceived ability of the borrower to repay. Surveys have shown that fewer than half of the students whose parents are deemed to be capable of supporting their offspring actually received the assessment amount, with many receiving nothing. The abolition of maintenance grants would by implication be the end of parental contributions and this is likely to be popular with voters.

Our discussions with leading banks indicate that, providing the repayment of loans and the interest charges could be made through a surcharge on either national insurance or PAYE, they would support the scheme. It would be for the Government to negotiate with the banks for lower than market rates of interest through the leverage of its willingness to act as debt collector.

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Our second area of concentration was the need to encourage choice and diversity. We noted that of the 1,331,000 students in higher education only 889,000 (67 per cent) are full-time students. 442,000 (33 per cent) are part-time. Furthermore in 1990 for the first time the number of mature students entering higher education exceeded the number of school-leavers.

In its 1994 report Choosing to Change, the Higher Educational Quality Council spelt out its vision of a more diverse pattern of higher education in which the divide between full-time and part-time studies and between academic and vocational courses would all but disappear.

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The report endorsed a more modular approach with credit accumulation playing a central role. Two thirds of universities have already introduced systems of credit accumulation or transfer. The policy group supports this view and recommends that a national higher education academic transfer scheme should be introduced by the quality council. The scheme should be voluntary but all institutions including universities, colleges of higher education and colleges of further education should be eligible to join providing their application is approved by the HEQC.

Our final recommendation concerns the way that the universities receive payment of their tuition fees. Roughly half is paid by a direct grant from the Higher Education Funding Council with the other half coming in the form of tuition fees paid by a local education authorities on behalf of students who are in turn reimbursed by central Government.

We considered moving entirely to a system of student fees with no central grant funding but on balance we believe it is wise to keep up the level of central grant funding. It is an appropriate investment for the Government to make and is essential to maintain the structure and overheads of the universities including the libraries and laboratories. We do however have reservations about current fee bands and the way that fees are paid by the local authorities.

We believe there is merit in introducing a national voucher scheme for all school-leavers who secure admission to a university and who hold the required qualifications. The voucher would represent the reimbursable cost of tuition fees at any university. It could be used immediately after school for full-time or part-time courses or later for mature students.

The voucher scheme would not replace central funding but only local authority funding. This would certainly be more cost-efficient and would empower students more directly, encouraging them to exercise their choice without the intermediary of local education authorities. Linked with a national credit transfer scheme it would be a considerable benefit to part-time and mature students as well as to mobility.

Sir Cyril Taylor is writing in a personal capacity as a member of the CPC National Policy Group on Higher Education. The full report by the group may be obtained from the Conservative Political Centre, 32 Smith Square, London SW1. Price Pounds 3.50.

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