Universities could be given funding incentives to provide courses that address the "skills needs" of the economy.

It is understood that the forthcoming higher education framework, due to be published in the next few months, will include new measures to encourage higher education to take a more "active" approach to building higher-level skills in areas of economic growth.

There is speculation that universities could be provided with financial incentives for tackling "skills gaps" through their courses, raising the prospect of funding premiums to encourage universities to provide courses such as engineering, and incentives for students to take the subjects, such as fee discounts.

This has prompted warnings that the Government has an "awful" track record of predicting the skills needs of the country, and that, for many in the sector, the term "economically valuable" "makes the blood run cold".

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Speaking this week, Lord Mandelson, the First Secretary, said there was a "need to make sure we set the right overall strategic direction in the UK in terms of some of the key skills and specialist knowledge that we will need to excel in a global economy".

He added: "We also need to recognise that universities and colleges understand best what their students need and how to deliver it."

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He defended the decision to merge the departments for universities and business to create the Department for Business, Innovation and Skills (BIS), arguing that universities would play a key role in helping Britain emerge from the recession.

However, Les Ebdon, chairman of the Million+ group of universities, warned that while the idea of predicting future skills needs was "superficially" attractive, the Government had an "awful" record in the area.

"The areas where the Government has direct control - teacher education and nursing and midwifery - are among the worst of all subjects for having mismatches of supply and demand," he said.

"The lesson of history is that we should trust students. Media studies is now number three in the jobs league table as young people saw something that others didn't see.

"Very often, things just don't work out the way the Government thinks they will. At the end of the day, universities can only teach the courses that students want to study."

Bahram Bekhradnia, director of the Higher Education Policy Institute, said that as there was no detail available on the Government's thinking, it was "too early to panic".

"In principle, there seems no good reason (why) the Government should not use financial incentives to encourage students to study subjects that are strategically important but for which demand is low - that would recognise that demand is the problem, whereas most previous initiatives have focused on supply," he said.

"But the term 'economically valuable' makes the blood run cold. Who will decide what subjects are 'economically valuable'?"

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The Government's New Industry, New Jobs policy statement, published earlier this year, says the forthcoming framework will explain "how higher education in England will take a more active approach to building British competitive strengths through higher skills levels, research and knowledge transfer".

This, and a paper on "skills activism", will detail measures designed to ensure that universities have "clear incentives" to respond quickly to support areas of potential growth in the economy.

The paper - which Lord Mandelson says explains the rationale behind the creation of BIS - talks of the need to "join up" government departments across traditional boundaries "in order to promote business competitiveness".

The strategy also includes the Government's plan for the new research excellence framework to take greater account of the economic value of research.

Alice Hynes, chief executive of GuildHE, said: "Future growth areas can be very difficult to predict. It is worrying that New Industry, New Jobs does not seem to register the economic power of the creative industries.

"Translating bright ideas into deliverable products requires the linking of culturally and socially informed research with scientific research."

In a debate in the House of Lords last week, Lord Hunt of Wirral described the merger of higher education with business within Whitehall as a "shameful and retrograde" step.

john.gill@tsleducation.com

?Times Higher Education put a series of questions to Lord Mandelson about his new remit this week. Read his responses - see right, "related articles".

'I DON'T ACCEPT THE PREMISE OF THE QUESTION'

Facing the press shortly after the Cabinet reshuffle, Lord Mandelson told Times Higher Education that far from being horrified by the restructuring in Whitehall, universities were "delighted" by the change. Here is his exchange with reporter Zoe Corbyn

Times Higher Education: "Universities have reacted with absolute horror to business being placed in the same boat as them. What is the message you are sending?"

Lord Mandelson: "That is absolutely untrue. I spoke yesterday to Rick Trainor of Universities UK who expressed no horror whatsoever. And I have received three messages from high-placed friends in different UK universities and they are delighted that universities should be at the heart of government and they look to me to be a powerful advocate of their interests and needs, and that is exactly what I am going to be."

THE: "So should universities now consider themselves as agents of business?"

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PM: "In what way?"

THE: "Because they are right in the same department."

PM: "I don't understand the question. What does that mean?"

THE: "As purely to help the economy rather than do all the other things that education gives us."

PM: "Why should they regard themselves in that way?"

THE: "Because they are right now in the same department as business, so surely there will be a much greater cross-over ... ".

PM: "But why should that transform the way universities look at themselves?"

THE: "So are you saying it won't? It shouldn't? I am asking you ... ".

PM: "I neither understand nor accept the premise of the question. Why should that change how universities regard themselves?"

THE: "OK. Do you think that having universities in the same department as business should change the way universities regard themselves?"

PM: "Why on earth should that change the way universities regard themselves?"

THE: "OK, so you don't think it should ... ".

PM: "I don't accept the premise of the question. Universities contribute as much to the character of our society and the development of individuals in society as they do to the competitiveness of our economy. Those things are not mutually exclusive. I don't see why they should regard them as alternatives.

"I think the point is, surely, that universities and the whole of further and higher education of course equip people as workers and employees, but they also enrich those people as individuals culturally, socially, educationally. I don't see those things as alternatives. People can both be workers and employees and cultured and educated people."

ANSWERS IN THE POST: THE MINISTERIAL RUN-DOWN

Eyebrows have been raised by the Government's decision to give a minister combined responsibility for students' issues and postal affairs.

In the now-defunct Department for Innovation, Universities and Skills, Lord Young was Minister for Students.

But after the creation of the Department for Business, Innovation and Skills, he has also taken on the Royal Mail and the Post Office.

Alice Hynes, chief executive of GuildHE, said she was worried about the message this mix of responsibilities would give to students. "The student voice needs to get a genuine hearing in the debate about fees and funding," she said.

Lord Drayson keeps his post as Science Minister but adds responsibility for research and procurement in the Ministry of Defence, while David Lammy remains Minister for Higher Education and Intellectual Property.

The MP Pat McFadden, Minister for Business, Innovation and Skills, will be Lord Mandelson's deputy on departmental business.

He will attend Cabinet and lead for BIS in the House of Commons, and will have a particular focus on "industrial activism".

Kevin Brennan MP will be Minister for Further Education, Skills, Apprenticeships and Consumer Affairs, in a joint appointment with the Department for Children, Schools and Families.