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Speaking at the annual Dearing Higher Education Conference at the University of Nottingham, Sir Alan said it was essential that work on quality improvement in higher education satisfied present and future students, and that concerns in Parliament and the wider public were properly addressed.

'From top to bottom university governors and staff have a responsibility to ensure that the potential of all students is realised, and institutions involve students directly in their efforts to improve quality and standards', he said.

On the transition to the new funding settlement Sir Alan said:

'We have an internationally respected higher education system, derived from a progressively reformed 'public-private' funding mix. There is a clear case for change based on questions of affordability to the state, benefits to individuals and the need for continuous improvement. This change needs to be carefully handled – building on existing strengths, investing for the future where possible and tackling weaknesses head-on.'

Sir Alan said that, in framing legislation and organisational change, institutional autonomy was the bedrock of success.

'In working towards the new arrangements we do need regulation that will protect the interests of students and the wider public, but this has to be carefully judged: whilst it should not be intrusive, there must be mechanisms to intervene when institutions are facing financial or other difficulties. This is an important balancing act and we need to get it right.'

Sir Alan said that despite the bruising effect of recent cuts in higher education, a preliminary review of universities' 2009-10 accounts showed that total income in higher education actually increased by 5.7 per cent on the previous year.

'Universities posted very respectable financial results with good levels of cash and reserves. The outlook for 2010-11 (despite further in-year reductions) is manageable for most institutions.'

He said the aggregate effects of all the recent changes would be very different in different institutions, and that HEFCE would work in the interests of students to support institutions which have to change their business models, and perhaps their size and shape, in response to higher levels of financial risk.

Sir Alan said the scale of the competitive challenge and the opportunities for collaboration with universities and education and research funders across the world reinforced his view that the Government must return to the question of public investment in universities - particularly science and research - as the economy improves, 'especially if it can be shown, as I am sure it will be, that universities and colleges are actively contributing to the process of recovery and growth'.

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