The Government this week urged universities and colleges to boost their contribution to the UK economy by recruiting more overseas students and becoming global centres of excellence for teaching and research.

Launching the Government's new international strategy for education on Monday, Charles Clarke, the Education Secretary, said there was scope for higher and further education institutions to build on the ?10 billion a year they already add to UK's economy through, for example, overseas student fees and the spending of these students while in the UK.

As the strategy is developed in the coming months, ministers are expected to announce a second phase of the Prime Minister's initiative to raise international student numbers. The initial target of the scheme, launched in 1999, was to recruit an extra 50,000 overseas students by 2005. Universities achieved this well ahead of time.

The strategy's four priorities include the recruitment of more international students. The document predicts that global demand for international student places could rise from 2.1 million to as much as 5.8 million between 2003 and 2020.

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But, as Mr Clarke gave the green light for further growth, a report from the Observatory on Borderless Higher Education warns that expanding international activities could be damaging to universities.

Cross-Border Higher Education says that by milking overseas activities for profit, the Government and universities will find themselves increasingly competing with private providers - with the result that they could lose the market share.

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The report, compiled by the Organisation for Economic Co-operation and Development, adds that universities could become victims of their own success if future governments cut public funding in line with increases in institutions' private earnings.

The British Council, while welcoming the latest strategy, warned of a potential short-term dip in the number of overseas students coming to the UK. Promotions director Neil Kemp said it was unlikely that the annual growth in student numbers of some 20 per cent in recent years would be sustained, as the most optimistic forecasts predict an average rise of 5-8 per cent until 2020. A drop in numbers has already been reported in Australia and the US.

The strategy's second priority includes turning UK universities into international centres of excellence or "hubs" for learning and research. To this end, the ten-year Science and Innovation Investment Framework, announced by Gordon Brown, the Chancellor, will include an international dimension.

From next year, universities will also be allowed to join the Global Gateway, a web-based service designed to develop international partnerships and attract overseas students.

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The third aim of the strategy is for universities to help the UK become a world leader in the use of e-learning, while the fourth is to encourage universities and colleges to work in tandem with industry to "sell" their services overseas as a training package.

tony.tysome@thes.co.uk