Universities were told that sweeping changes are needed to the way they manage their affairs in order to repair a "breakdown of trust" with government.
Oxford and Cambridge were highlighted in the Treasury report by Richard Lambert which proposed a three-year deadline for the reforms needed to make them more responsive to business and international competition. Mr Lambert, a former editor of The Financial Times, said that they should then "agree with the Government what further steps will be necessary for the two universities to sustain their global position".
The year-long review of the relations between higher education and business, ordered by Gordon Brown, concluded that business remained critical of "the slow-moving, bureaucratic and risk-averse style of university management". But the 133-page report also found that universities resented an "unnecessarily burdensome" system of government regulation and felt "micro-managed" by a multitude of initiatives to hold them accountable for public funding. It concluded: "The overarching problem however, comes down to a matter of trust. The government doesn't seem to have enough confidence in the way that universities run themselves to give them extra funding without strings attached. Yet if universities are to become more creative in playing their full part in regional and national economies, then ways must be found to give them more room to develop a strategic vision and take entrepreneurial risks."
Mr Lambert called for a shift towards "risk-based regulation" which would offer a greater freedom for universities that could demonstrate they were well run. This could include asking universities to concentrate executive powers in the hands of the Vice-Chancellor and a governing body of no more than 25 members. Mr Lambert made clear that Oxford and Cambridge's Collegiate structure was a barrier to the changes necessary for them to fulfil their role in their success of Britain's economy. He said that they should forge a new relationship that protected individual colleges' strengths but "prevents them from blocking decisions that are in the interests of the university as a whole". Oxbridge had made progress towards modernising governance and management structures but still had "much further to go". Mr Lambert insisted that his call for a review after three years did not amount to a threat of government intervention if Oxford and Cambridge fail to reform speedily.
But it drew a frosty response from Sir Colin Lucas, Oxford's Vice-Chancellor. He said that the inquiry had demonstrated that Oxford was "the model for the contribution of universities to the knowledge economy". He went on: "therefore I will be seeking clarification of his comments on governance in the context of the major reforms which the university has already implemented successfully."
The report said that Oxford and Cambridge needed to "generate significantly more money than they are likely to get from public funding in order to pay their academics a more competitive wage, to develop their research strengths, to cover their teaching costs, and to subsidise talented students where necessary. "Somewhere in the future there is a deal to be made. The universities need to demonstrate that they can run their affairs efficiently. In return they should be given greater freedom to run their affairs."
The report said that it was common for the new universities to be run along business lines with small governing bodies of between 12 and 24 people with a majority of external figures and a vice-chancellor who exercised the powers of a chief executive. But this was much less true of the older universities, which had been run historically as "communities of scholars". Policy decisions at Oxford are taken by the 26-member council, which Sir Colin chairs. But major changes have to be approved by Congregation, which has more than 3,200 members from its academic, research and administrative staff. Reforms at Cambridge has strengthened the office of the Vice-Chancellor, but its council must still get decisions confirmed by Regent House, the 3,000-strong governing body. It defeated an attempt in January to hand more executive power to the Vice-Chancellor.
Mr Lambert urged the government to spend £150 million a year in England on exploiting commercial uses of research. Up to £200 million should be earmarked for "business relevant research" at departments that could show "strong support from business". The Russell group of 19 leading universities should also establish a league table of the world's best research-intensive higher education institutions.
The Government will set out its formal response next summer. But Mr Brown said Mr Lambert had set out "a strong case for a share of university research to be driven by the needs of business". Professor Alison Richard who became Vice-Chancellor of Cambridge in September said considerable debate was already taking place about how the university might reform its governance "without undermining the features that make Cambridge world-class".
Gains in funding from allowing universities to raise tuition fees could be wiped out by government concessions to rebel MPs, an analysis by the Institute for Fiscal Studies has found (writes Tony Halpin).
The Government expected to raise an extra £1.4 billion for higher education if every university charged the maximum fee of £3,000 a year. About £700 million would be consumed by the costs to taxpayers of subsidising the interest rate on loans for students to pay the fees. If many universities chose not to charge the full amount then the sum raised could drop to £500 million. The overall public spending on higher education is £9 billion a year.
Alissa Goodman, the research director at the Institute, an independent think-tank, said that the value of the reform to the public purse would drop still further if ministers raised the income threshold at which graduates began repaying their loans. There have been suggestions that Charles Clarke, the Education Secretary, will offer to raise the threshold from £15,000 to £20,000. The Institute for Fiscal Studies calculated this would cost taxpayers the same as giving a single £900 grant to every student. Potentially, it would erase the gains altogether if 750,000 graduates benefited from the concession to MPs.