More money, more choice and a virtuous circle of innovation

In preparing my speech for today's Universities UK annual conference, I've had cause to reflect on an intense - and sometimes turbulent - period for higher education. In less than a year, the sector has gone from anticipating reform to actively preparing for the first intake of students under very different financial arrangements.

It seems remarkable that this time last year, Lord Browne had yet to issue his report on higher education finance. A mere 12 months on and preparations are well under way for a substantially different funding system. Money - and more of it - will follow applicants to the institution of their choice, the quid pro quo being that those institutions become more accountable to students for the undergraduate experience they provide.

By establishing this new system, the government is seeking to improve student choice and access, teaching and employability - as well as putting the sector's finances on a sustainable footing. Whereas my department, the Department for Business, Innovation and Skills, invested about £9 billion in higher education in 2010-11, we expect this figure to reach about £10 billion in 2014-15. This is at a time when the government - including BIS - is making overall cuts.

Also by 2015, the sector will be spending more than half a billion pounds annually on widening access, thanks to the institutional plans agreed with the Office for Fair Access. UUK is to publish its recommendations on improving institutional efficiency later this month. And in the next few weeks, recent graduates will start visiting English schools, sixth forms and colleges to explain the new funding, grant and loan arrangements.

In line with the White Paper, Students at the Heart of the System, we're designing a less intrusive regulatory regime - to be introduced through legislation next year - so that universities and colleges have more room to develop according to their own missions.

We are also working with the Higher Education Funding Council for England on lifting some of the restrictions on student numbers for 2012-13. We are doing this not to revive a two-tier system, but to increase competition and support diversity in the sector.

The government has no ideological attachment to the selected methods for freeing up places and we won't attempt any reform that could upset careful management of public expenditure. The goal is greater choice for students between different types of high-quality provision - and we will review the effectiveness of our "core and margin" plans to this end.

All told, this represents not just a coherent vision for the higher education sector, but also an opportunity for universities to grow and flourish. As secretary of state, I've seen ample evidence of such potential in further education colleges that deliver excellent undergraduate degrees, as well as in the research-intensive institutions that boast Nobel laureates.

Most encouraging from my perspective is the evidence of universities joining forces with business to fund student places, exploit their intellectual property and help companies to bring their products to market. Indeed, one of the main themes of my UUK speech is the importance of universities making a contribution to the country's economic growth that is commensurate with their clear potential to do so.

This aspect of universities' remit did not feature heavily in the higher education White Paper because we intend to address it as part of a forthcoming innovation and research strategy. The government has already protected public investment in science and research, but we must make sure that our policies on knowledge exchange and innovation are mutually reinforcing.

The task is to preserve a virtuous circle of excellent research, which will entice the smartest academics to our universities and pull in grants and investment so that technological and intellectual breakthroughs continue to occur in the UK rather than somewhere else.

Many universities already make a major contribution to their local areas. Now there are additional ways in which they can work with businesses and support growth.

The new technology and innovation centres, for example, will draw on the work of leading researchers to accelerate the commercialisation of emerging technologies. We have announced three centres to date, covering high-value manufacturing, cell therapies and offshore renewable energy. And of the 15 local enterprise partnerships recognised so far, each has at least one university participant.

Feelings of optimism on my part in no way disregard the challenges that still face our universities. Nevertheless, with increased funds going into the sector - albeit in a different way - opportunities abound to strengthen our outstanding higher education institutions.