Universities need an image overhaul, David Lammy, the Higher Education Minister, has told vice-chancellors.

Speaking at the Universities UK Annual Members' Conference in Edinburgh last week, the minister said he had asked the Design Council to look at how the sector might "communicate its value better" to the public.

In one of his most critical speeches to date, Mr Lammy said that while universities were adept at marketing themselves internationally, the British public's perception of them was "outdated".

He warned: "Even if you aren't complacent about quality, you sometimes appear to be ... you have to recognise that and deal with it."

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But Mr Lammy dismissed the recent Innovation, Universities, Science and Skills Committee report criticising standards in the sector as "political grandstanding".

His comments came as the UUK board voted to set up a national review of external-examiner arrangements after concerns about standards were raised in the press last year.

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Mr Lammy warned of likely funding cuts and hinted that future settlements could depend on the sector improving its image among taxpayers.

"When I spoke last year, I ... pointed out the contrast between how much American universities make of their economic and social contribution and how little many of our own institutions do," he said.

"Visit the website of any US state university and you'll see what I mean. The payback that taxpayers get for their investment will be right up front - in words, in figures and in case studies."

Repeating his call to emulate that example, he said: "In the current spending climate, I hope its importance will not be lost on you."

Potential students, as well as taxpayers, need more information, he added.

The Higher Education Funding Council for England is commissioning research to look at what information students need and want before going to university, including facts on contact hours, how much independent learning is required, the types of assessment involved and employment prospects.

"It won't surprise you that this is a subject on which the Higher Education Framework will have more to say," Mr Lammy said.

The framework, which is currently being reviewed by Lord Mandelson, the First Secretary, is due for publication this autumn.

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Private income

Mr Lammy provided little comfort to Steve Smith, the new president of UUK and vice-chancellor of the University of Exeter, who used his inaugural speech to call for more funds for teaching and research.

Professor Smith said that universities were key to the UK economy.

"We will argue for growth in investment in teaching and research, not despite the current economic crisis but because of it," he said.

Mr Lammy gave a blunt response: "Universities have had it good for more than a decade ... it's no secret that current levels of public investment are unlikely to be sustainable in future."

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If universities want more cash they will have to boost their private income, he stressed.

"Any sensible analysis can only conclude that you need to find new ways to leverage private money into the system," he said.

Research funding will depend increasingly on demonstrating the potential impact of academic work to panels of businesspeople and policymakers, he added, and institutions are likely to have to compete for more of their grant in future.

"We are working with Hefce to look at how we can develop the funding model to help the sector further increase its economic contribution," he said.

"That may mean making a larger proportion of funding contestable. But that raises important and complex questions, and our thinking on it is still developing."

The framework will be asking the sector to "move further and faster ... towards greater emphasis on economic outcomes," he added, and would place particular emphasis on growth areas of the economy identified in the Government's New Industry, New Jobs strategy paper.

Mr Lammy also told vice-chancellors that he expected them to take "a disciplined approach to pay and pensions".

David Eastwood, vice-chancellor of the University of Birmingham, told Mr Lammy that any significant reduction in the unit of resource - the amount paid to universities to teach each student - would lead to an erosion of quality.

Mr Lammy said: "We remain committed to the unit of resource." He went on to add that he hoped the sector would "pay close attention" to what politicians across all parties had to say on the matter because differences were emerging.

However, at a later press conference, Mr Lammy admitted that the Government's commitment to the unit of resource extended only to the end of the current Comprehensive Spending Review period in 2010.

"The Liberal Democrats are talking about abolishing tuition fees but don't have a way to pay for that, so the unit of resource would go down," he said. "The Conservatives are playing their hand close to their chest," he added.

The Million+ group of new universities issued a statement warning of the dangers of competitive bidding on teaching funds, and of concentrating too narrowly on particular industries.

Les Ebdon, chairman of Million+ and vice-chancellor of the University of Bedfordshire, said: "Proposals to apply competitive bidding to a teaching fund that is already being cut in order to promote a limited number of sectors will inevitably mean cuts in other areas."

The University and College Union criticised Mr Lammy's comments on pay.

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It told him to "keep politics out of university pay talks".

melanie.newman@tsleducation.com.