Scottish Higher education and the Scottish economy

4.117 We consider Scottish higher education providers to have a significant and valuable role in the Scottish economy, as creators of revenue, as generators of external income from services, as economic regenerators, as producers of skilled recruits for employers and as centres of leading-edge research. We have sought to assess how that role is fulfilled at present. The importance of research to the development of the Scottish economy has been considered earlier.

4.118 We believe that Scottish higher education should build on this role. In particular, we believe that there is a need to build on the current partnerships between the higher education sector in Scotland and Scottish employers, which is to their mutual benefit. We have examined a number of ways in which these partnerships may be enhanced.

The creation of revenue
We have considered the Committee of Scottish Higher Education Principals (COSHEP)-sponsored study, 'The Impact of the Scottish Higher Education Sector on the Economy of Scotland' (the McNicoll higher education report) and note a number of its key findings:

  • in 1993/94 the total revenue of Scottish higher education institutions amounted to approximately 1.1 billion, of which 22 per cent came from the UK private sector and an additional six per cent came from overseas;64
  • the higher education sector as a whole attracted nearly 400 million into Scotland from the rest of the UK in 1993/94, only two thirds of which accrued directly to the higher education institutions;65
  • international revenues attracted to Scotland by the higher education sector amounted to almost 140 million in 1993/94;66
  • the total revenue attracted to or retained in Scotland by the higher education sector in 1993/94 was around 1.41 billion. This included the receipts of the higher education institutions (1.1 billion), the 'relevant income' of Scottish students, ie maintenance awards and student loans (120 million), and the off-campus expenditures of students and visitors from the rest of the UK and from overseas (191 million). This total revenue of 1.41 billion was greater than the total 1992 manufacturing gross output of many significant Scottish manufacturing industries;67
  • the knock-on effect of the expenditure of the higher education institutions, their staff, students and visitors generated positive economic activity in other Scottish industries;
  • the total sectoral gross output generated by the higher education sector in 1993/94 was 2.47 billion, over half of which was generated in other Scottish sectors;68 69
  • In 1993/94, through direct and knock-on effects, Scottish higher education generated over 68,000 full-time equivalent (FTE) jobs in Scotland, over half of which were outside the higher education sector itself. This was equivalent to 4.2 per cent of total Scottish FTE employment in that year.70 Employment generated was in all occupational groups and income bands.

4.120 The economic contribution of further education colleges in Scotland, beyond the provision of quality personnel for employers, should not be overlooked. Another McNicoll report, 'The Impact of Scotland's Colleges on the Economy of Scotland', found that, in 1993/94, Scottish colleges injected 602.9 million into the Scottish economy and sustained over 19,100 full-time equivalent jobs, over 40 per cent of which were outside the further education sector.71 The study also shows that, aside from their economic contribution, Scottish further education colleges have a social and cultural role in the communities they serve, as providers of expertise and advice and providers of facilities.72

4.121 This analysis shows that Scottish higher education is a major player in the Scottish economy and has a major impact on Scottish economic activity.

Generating external UK and overseas income from services
In 1995/96, Scottish higher education institutions received a total income of over 121 million from research grants and contracts, excluding income from the Research Councils (see Table 2.1). Over 21 million (nearly 18 per cent) of this funding came from UK industry, commerce and public corporations. This compares favourably against the rest of the UK which attracted only 16 per cent of its overall funding from these sources. The same is true for income generated through other services rendered.73 In Scotland, nearly 85 million was raised from this source and over 33 per cent of this income came from industry, commerce and public corporations. In comparison only 16 per cent of income generated from other services rendered in the rest of the UK came from this source.74

4.123 Higher education is acknowledged to be one of Scotland's major service sector exporters. The 1997 Scottish Council Development and Industry Service Sector Export survey showed higher education's international activity to be responsible for eight per cent of all Scotland's service sector exports. The survey noted that, 'tourism aside, higher education remains Scotland's leading exporter, by value, recording an increase of 7.8 per cent to 151.8 million [in 1995].'75 There is other evidence from ongoing Scottish Office Education and Industry Department (SOEID) work on 'Trade in Skills', under the Scottish Input Output Project, that suggests that Scotland's strongest comparative export advantage is in its provision of higher education both to the rest of the UK and abroad.76

4.124 We have noted that institutions across the Scottish higher education sector have links to countries in every part of the globe. Several institutions have highly successful distance learning operations in addition to attracting large numbers of overseas students. The considerable strength of Scottish universities in exporting higher education services is reflected in the fact that Scottish universities have won three Queen's Awards for Export in the past five years.77

There is evidence that the sector is actively seeking to capitalise upon individual institutions' success in the international market by working with other Scottish agencies and with business to promote Scottish higher education abroad. Groups such as the Scottish Education and Training Export Group (SETEG), have been formed with the assistance of Scottish Trade International and other interested bodies such as the British Council. SETEG aims both to secure Scotland's share of the existing market and to capitalise upon the opportunities which exist for increasing overseas earnings from both the higher and further education sectors. The recognised importance of education as an export to the Scottish economy has also led to the establishment of an Education Export Fund by Scottish Trade International in 1996. The fund is aimed at assisting institutions in international marketing.

4.126 We are interested to note that there are also projects which seek to make specific links between overseas students and Scottish business in order for potential business export contacts to be made.78

4.127 We would encourage the Scottish higher education sector to continue to develop its international activity both individually and collectively and in collaboration with public agencies and business. We note that such activity brings benefits to Scotland beyond those accruing to the institutions and see it as particularly important, both for the institutions and for the economy more generally, that more partnerships are developed with business in order that full advantage can be taken of Scottish higher education's expertise.

4.128 We see an important opportunity for Scottish higher education to develop its role as an exporter of teaching expertise to other sectors, both in Scotland and the UK and further afield. We have seen that efforts are being made to exploit this opportunity through the establishment of a new distance learning company, Scottish Knowledge, designed to make Scottish higher education available throughout the world via the Internet, CD-ROM and satellite. We note the support voiced for the project by many Scottish higher education institutions. It is our view that there may be scope for effective partnership between industry and higher education through projects of this kind, provided that the necessary initial investment can be raised. We are encouraged to record that Scottish Knowledge is making good progress towards raising its required investment capital.

The regenerative impact
As shown above, we consider, and the findings of the McNicoll report suggest, that higher education has a beneficial impact on the economy and society of Scotland as a whole. This beneficial effect can be seen particularly in the regions where higher education providers are sited simply through the presence of large numbers of staff and students who live and work in the local community.

4.130 However, we believe that higher education can also have a powerful long term regenerative impact. This is one of the arguments that has been put forward in favour of the University of the Highlands and Islands (UHI) Project, although we cannot, of course, make any predictions about the success of the Project at this stage. We consider that in such cases regeneration can best and most sensibly be achieved through partnerships between the institution and local and regional interests. We have, therefore, noted the contribution which the region and local industry is making to the UHI Project, over and above the funds which are being made available by the Government. Similarly, higher education can have a positive influence in attracting overseas industry to Scotland: 'the decision of where to locate can be influenced, for example, by the number, nature and quality of student output and academic research expertise'.79

Meeting the recruitment needs of employers
4.131 We hold it to be vital to the strength of the Scottish economy that as many, and as many of the best, graduates and diplomates from Scottish further and higher education institutions should be recruited by Scottish employers. We believe that this will benefit Scotland's industrial base and its economy in general and we note that others share this view: 'universities have the potential to affect the long-term performance of the economy through the recruitment of their graduates by Scottish companies'.80

4.132 Evidence suggests that the great majority of Scottish graduates find work in Scotland.81 In 1996, 75.5 per cent of Scottish domiciled graduates from Scottish universities went on to employment or further study in Scotland, while 23.9 per cent of other UK-domiciled graduates remained in Scotland. This suggests that the Scottish economy and Scottish employers are successful in meeting the employment needs and wishes of both Scottish and other UK-domiciled graduates. It also suggests that there is a rich supply of graduates for Scottish employers. We believe that this must continue to be the case and that efforts should be made to ensure that Scotland continues to be an attractive destination for its own graduates and those from elsewhere in the UK.

4.133 It is a view shared by many, not least in Scotland, that one of the key purposes of higher education is to prepare students for employment: 'the first objective of higher education should be to impart the skills and attributes which will allow for active participation in employment'.82 We have already noted that we endorse the conclusions of the National Committee that four skills (communication skills; numeracy; the use of information technology; and learning how to learn) are essential to graduates' future success in any field of life. We believe that employers value analytical and specialist skills but need also core skills and breadth. A similar view was expressed at a seminar of Scottish small and medium-sized employers (SMEs) which took place in December 1996 and which was attended by members of the Scottish Committee. We would add, however, that those entering employment from higher education need the skills to apply the knowledge which they have acquired during study.83 There is a strong case for saying that 'while many employers have development programmes once within employment ... these skills should be embedded in the higher education system.'84

We recommend earlier that, in future, students should have greater opportunity to exit higher education at various points with honour. An outcome of this will be an increase in the number of students exiting higher level study with a broad-based Bachelors degree although many will continue to choose to study in greater subject depth to honours level. This, we believe, will serve to provide employers with the mix of generalists and specialists that evidence suggests, they are looking for.

4.135 The role of sub-degree qualifications in meeting the needs of employers and of the Scottish economy must not be forgotten. This is shown by the outcome of a consultation exercise on Higher National awards by the then Scottish Vocational Education Council (SCOTVEC), completed in 1996, which involved a range of employers and professional bodies. The exercise found that 'Higher National awards are highly valued and...the system is working well; there is no demand for radical change'.85

4.136 Significant collaborative activity between the Scottish higher education sector and employers, aimed at better meeting the needs of Scottish employers, is already under way. We have read of examples of degree programmes being developed to meet specific skills needs in, for example, the plastics and electronics industries.

4.137 Similarly, we note the success of existing 'people transfer' schemes in Scotland, including:

  • the Teaching Company Scheme which partially funds quality graduates to work on company agreed projects for up to two years, with 30 per cent of such projects in Scotland in companies with less than 50 employees;
  • the Scottish Textile Design Development Scheme which provides partial funding of a textile design graduate for one year.

4.138 Evaluation of such schemes suggests that they have been successful. We note that both employers and academic staff involved in such projects considered that such links should be strengthened and improved.

4.139 We have thought carefully about how graduates and employers can better meet one another's needs, in order both to give strength to the Scottish economy and to maintain a healthy demand for, and flow of, quality graduates to and from the rest of the UK. In an earlier section of the report we considered how employers might become more involved in the design and development of courses and curricula, not least those leading to the new-style Bachelors qualifications. We believe that there are additional ways in which employers can and should take greater responsibility for ensuring the development and output of graduates that meet their demands. These include providing opportunities for:

  • student sponsorships and work experience;
  • initial graduate training;
  • continuing professional development, following initial training, of employees.

4.140 In our discussions with employers, there was general support for the value of vocational work experience for full-time undergraduates. Sponsorship and vocational work experience were fairly common in the 1960s and 1970s but the more competitive pressures of recent times have caused a number of those schemes to be abandoned. The concept of sponsorship whereby a school leaver spends a year in employment prior to taking up a place at a university or college and then spending summer vacations at the sponsor's work place is generally agreed to be a model that produces more rounded and able graduates. In a learning society it is time for employers to consider the re-introduction of such schemes. It is a model which lends itself to all employers not just those involved in industry.

4.141 Sponsorships can and should:

  • provide students with work experience prior to entering higher education;
  • provide employer contributions to the funding of students' tuition and/or living costs;
  • provide quality vacation work experience where students receive pay at normal company rates and which involves specific training in the skills and attributes which will be required of them as graduate employees.

4.142 As well as sponsorships of this kind, we see value in the provision of quality work placements and 'people transfer' schemes, particularly in the development of graduate employees for the small and medium-sized enterprise (SME) sector. The Scottish economy has a great dependence on the creation and success of SMEs. It is, therefore, important that graduate involvement in such companies becomes the norm. We believe the Shell Technology Enterprise Programme (STEP) award scheme conceived by Shell UK Ltd could, if extended, go a long way towards achieving greater involvement of graduates in SMEs. The STEP award is given to undergraduates who undertake a specific project in an SME during the summer vacation.

4.143 It is clear that there are many Government initiatives in place to assist SME development. We believe that the Scottish Office Education and Industry Department (SOEID) should consider using some of the existing funds allocated for SME support to develop an extended STEP scheme. We estimate that for every 1 million of annual spend matched by similar funds from SMEs it would be possible to provide approximately 1000 undergraduates with 12-week summer vacation work placements.

4.144 Such work experience opportunities would demonstrate to the SME the value of employing graduates on a full-time basis. Work experience and sponsorships give employers the opportunity to see students at work, first-hand. Through testing and developing skills for employment, and providing experience of workplace procedures and equipment, employers can help secure for themselves a better skilled graduate workforce.

4.145 We firmly believe that employers who employ graduates, or who will begin to employ graduates in the future, should be committed to, and make a contribution towards, the effective recruitment and development of those graduates. We consider that the Investors in People (IIP) standard offers a good indicator of this commitment where, as will be the case for organisations which need and use graduate skills in the workforce, procedures to recruit and develop graduate employees are examined as part of the overall IIP assessment exercise.

Recommendation 16
We recommend to the Confederation of British Industry (Scotland), the Scottish Council Development and Industry and other employer associations that they should urge their members to give consideration to increasing provision of sponsorship opportunities and work experience for students.

Recommendation 17
We recommend to higher education providers and employers that they should collaborate to develop more sponsorship and work experience opportunities which provide real benefit to both students and employers.

Recommendation 18
We recommend to The Scottish Office Education and Industry Department that it should look in detail at the scope for developing additional work placement opportunities on the Shell Technology Enterprise Programme model using funds already channelled for support of Small and Medium-sized Enterprises.