New universities may be driven back to their polytechnic roots under radical Conservative plans to privatise ÖйúAƬ institutions.

In a remarkably candid interview with The THES, shadow education secretary Theresa May expressed regret that the former polytechnics had "lost their way" since becoming new universities, mainly by seeking to ape pre-1992 institutions.

Although she refused to criticise the previous Conservative government's decision to create the new universities, Ms May said that the move had resulted in the dilution and even destruction of much of what had made polytechnics so effective and popular.

She said: "When we made the polytechnics into universities I think one of the things that happened was that those institutions tried to offer a full range of courses, rather than consolidating niche courses. It is not that the dream turned sour, but that some institutions lost their way.

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"What I think will come out of (the Conservative proposals for ÖйúAƬ) will be greater diversity in the system. We will see universities looking more clearly at what it is they are offering students and I believe that some universities will become centres of excellence in some disciplines."

Ms May was speaking after William Hague unveiled the Conservative pre-manifesto Believing in Britain, which included the proposal to free universities from dependency on state cash for teaching. Research would continue to be state-funded, although the Conservatives are looking to review the research assessment exercise in time.

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For teaching, institutions would be encouraged to bid for one-off endowments from a multibillion pound pot of cash, comprising windfalls from various, as yet unspecified, public asset sales. It is thought that a university currently receiving Pounds 50 million for teaching could be given Pounds 1 billion.

Universities would invest their endowment to generate income to fund teaching and use their newfound independence to attract other private investment.

Ms May said: "It is about setting our universities free to be able to compete with the best in the world and offer young people excellence. Endowments will give universities that ability by removing government interference."

Differential undergraduate tuition fees play no part in the Conservative proposals. The government could attach certain terms and conditions to the endowments, which could include a guarantee of limiting fees to some state-prescribed maximum. The longer term reality, however, would be that endowed universities, as private institutions, would have the strongest of cases to charge what they liked. Ms May said that the party would consult further on this.

The same state-private dichotomy holds true for student access and academic quality. Ms May said universities might have to guarantee a certain level of access for disadvantaged people as part of their bids for endowment cash.

Similarly, Ms May said the current quality auditing process, run by the Quality Assurance Agency, was hugely bureaucratic and ought to be reformed. But she said that the precise method of securing quality in institutions that fund their own teaching would be subject to further consultation.

Ms May dismissed claims that the proposals would create a tier of wealthy, endowed universities and, at the other end of the spectrum, state-dependent "sink" universities. She said, however, that a limited number of universities, including post-1992 institutions, would be able to bid for endowment funds initially. The rest would continue to receive a block grant for teaching.

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She said: "We do not want a situation where non-endowed universities feel they are under the cosh and the others are doing what they like. I hope the non-endowed universities will see that there are advantages in moving to endowment when (funds are) available.

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"Universities are different. We want, through endowments, to encourage excellence and aspiration among all institutions. What matters is that universities are providing a good-quality education within their own university (mission).

"It is true of ÖйúAƬ as well as schools that there are people of differing abilities who will be looking to different courses and different standards. We want all young people to achieve their full potential."

Lecturing unions welcomed the Conservative's recognition of the need to inject money into universities and free them from some of the more onerous state controls and bureaucracy. But they have serious misgivings.

David Triesman, general secretary of the Association of University Teachers said: "The amounts spent on university administration and the amount of red tape is genuinely suffocating good teaching and research, so to have greater independenceI would be very attractive to many institutions. But merely giving endowments to a few institutions would set the Ivy League in aspic."

Tom Wilson, head of universities for lecturers' union Natfhe, said: "The Tories' promise of more university money and freedom is welcome but the principle of privatisation is not. Such a result would create a two-tier system, perpetuating inequality and wrecking any attempt at a coherent ÖйúAƬ strategy."

The Russell Group of leading research universities, which has been at the forefront of calls for differential fees and greater freedom from bureaucracy, welcomed the chance for a national debate on any proposal that would provide more money while protecting student interests and preserving independence.

The Committee of Vice-Chancellors and Principals refused to comment on the Conservative proposals, saying that it was conducting a review of funding options for ÖйúAƬ.

The NUS believes the proposals will lead to differential fees.

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