Privateers on parade in Lords

Universities are in such crisis that the elite should consider opting out of the public sector, Kenneth Baker this week told a crowded debate on the state of higher education in the House of Lords.

"Universities are a nationalised industry and have all the characteristics and weaknesses of a nationalised industry... Universities started out as private, they should become so again - independent, free-standing institutions," said Lord Baker, a former education secretary in Margaret Thatcher's government.

"Universities should be responsible for the range of subjects provided, driven by demand, with freedom to negotiate salaries and investment programmes... My advice to the Russell Group, quoting Milton, would be to 'strike high and venture dangerously'," he added.

Peers lined up to attack the government's reluctance to acknowledge the state of higher education, address low academic pay and cut the red tape swamping university funding. If the problem is not addressed through increased funding, universities will have to turn away from the public sector, peers warned.

Lord Desai, a Labour lord and economist at the London School of Economics, said: "There are two plans. Take the current system, stop any further efficiency gains and bootstrap it up - what we need is a bold plan to restore funding. The alternative is to say let us go the private way. That option has great attraction, but what are the costs?" Baroness Young said: "All universities should consider becoming independent. If we are to keep up standards of excellence and the state cannot or will not provide the money, then we have got to privatise."

Baroness Warwick, chief executive of the Committee of Vice-Chancellors and Principals, described how the sector was working to meet government targets on boosting the numbers going to British universities from this country and overseas.

She said: "All this cannot be conjured from the thin gruel of starvation. Without extra funding, universities will be unable to meet this challenging agenda."

The government should loosen its grip on higher education, peers heard.

Lord Oxburgh, rector of Imperial College, London, described the system of higher education funding as having "echoes of the command economy of the Eastern bloc", with the government setting the number of students and the funding universities receive.

He said: "The level of funding today seriously threatens the long-term future of the system. Students receive less personal attention. Staff salaries have declined. Institutions have chosen to neglect infrastructure instead of serving students less well."

Lord Oxburgh said that he was "ashamed" to invite his overseas counterparts to visit Imperial College because its facilities were so run down.

"The government appears deaf to pleas that the universities are underfunded. If it does not believe the universities' case, it must state what it would accept as proof that the universities are bleeding to death and that the relentless cuts of the previous decades must be reversed," he concluded.

Lord Dearing, who chaired the 1997 inquiry into higher education, said:

"You cannot exploit people indefinitely and continue to be world class. We have exploited our past and our people."

On the question of paying research overheads, Lord Dearing added: "I remain concerned that the research councils will not be providing money to meet the indirect costs of research. My committee recommended an increase from 45 per cent of the costs to 60 per cent. I now doubt whether 60 per cent is enough."

Lord Dixon-Smith, chairman of Anglia Polytechnic University, criticised the bureaucracy surrounding the public funding of universities. He said: "A single Quality Assurance Agency audit for a single department costs Pounds 350,000 and we have several such visits a year, money that would better be spent on students."

Defending the government's record on higher education, Baroness Blackstone said: "We have held efficiency gains at 1 per cent. The spending review is continuing. No results have been announced and reports of 3 per cent cuts are rumours. I will fight very hard for the compact that the government made with universities over Dearing to be adhered to."

Lord Baker replied: "I don't believe she (Baroness Blackstone) has the fire-power to take on the chancellor. She is going to come to the House with a very disappointing settlement."

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