Vice-Chancellor's Oration 2003: Supplement (1) to Gazette No. 4671

7 October 2003

I must begin this year's Oration by noting for the record news that is known to us all. Our Chancellor, the Rt. Hon. Lord Jenkins of Hillhead, OM, died at the beginning of this calendar year. As my tribute on behalf of the University, delivered at his memorial service in the University Church, was printed in the Gazette, I shall limit myself here to stating the strong sense of loss felt by the University and also our gratitude for his active and effective devotion to our interests during his tenure of office. I should also record that, under the procedures laid down and after a contest between four candidates, the Rt. Hon. Christopher Patten, CH, was elected our new Chancellor and installed at this summer's Encaenia, when he delivered a speech which gave pleasure to the members of the University. The season of the Vice-Chancellor's departure is more certain. This summer, the University has elected Dr John Hood, currently the Vice-Chancellor of the University of Auckland, whom I am pleased to welcome as my successor and who will take up office at this ceremony next year.

The academic year 2002–3 has maintained a pattern that is by now familiar. On the one hand, we continue to see evidence of the vitality and innovation of this University; on the other, we continue to be challenged and constrained by the context within which we operate. So, in a pattern now familiar for the Oration, let me begin by reviewing some of the achievements of the University and its members this year.

When my predecessor, the Principal of Jesus, demitted office he told me that the one thing that he had expected on entering as Vice-Chancellor ten years ago was to have completed the acquisition of the Radcliffe Infirmary site. Indeed, the purchase of the Infirmary has been a long-held strategic objective of the University, confirmed most recently by the site strategy accepted in 1997. It has indeed also been a long and tortuous process, as the hospital Trusts have confronted a sequence of obstacles over the years to their strategy of consolidation in Headington.

This acquisition is an important moment for the University. Our successors would not have understood if we had allowed the Infirmary to go to other purposes. This is the last site of significant size contiguous to the heart of the University. It offers us the elbow-room to adjust our future provision in light of the changing requirements of a research-intensive university. It is essential for our continued health that we give ourselves a capacity for flexibility, an important part of which depends upon adequate space. If we add the Infirmary to other purchases which we have made over the last half-a-dozen years, we do now have the kind of land bank that should allow us to respond to opportunities and needs which are not yet visible to us.

I must express our gratitude to those who have helped to ensure this favourable outcome. Over the past few years, I have chaired a small committee of wise and knowledgeable colleagues whose resolve and acuity allowed us to pick our way through the complexities of the approach. We are also indebted to the Registrar and the Land Agent for their skill in bringing all this to fruition. In addition, I should acknowledge the role of the City Council and its officers who, without compromising the interests of the broad community and economy of Oxford, did endorse the designation of this site for academic purposes in the city plan. Finally, a considerable transfer from the University Press towards the capital costs of redevelopment gave us the security for the active future of the site, once it finally comes into our hands with the completion of the transfer of NHS activity in 2007.

I want to pause here for a moment on the University Press. I should note that a number of years ago the Press also made a significant transfer which served to underpin the eventual purchase of the site. So, the Press has been crucial to this necessary step. It has also this year endowed some book purchasing in the library system. Finally, we have agreed to increase by one-third the amount which we spend annually through the Clarendon Fund on financial aid to overseas graduate students, funded by income from the Press, which has also agreed to a further transfer each year towards the funding of the Oxford Bursary Scheme. I believe that the financial relationship between the Press and the University, of which it is a department and to whose academic purposes it contributes, is now on a clear and steady basis. It is a relationship that is beneficial to our general academic activity. We should recognise the success of our University Press and, indeed, remark more especially its continued success during the very difficult trading conditions of the last two years. We should recognise that its contribution to our academic purpose is sustained by the commitment of all those who work there.

The University has also been most fortunate to receive in benefaction another site. In memory of its founders, Miles and Briony Blackwell, The Tubney Trust has given us Tubney House together with thirty-four acres of grounds, between Oxford and Abingdon, and a significant donation for renovation. This will serve as the home and research station of the Wildlife Conservation Research Unit, which is part of the Department of Zoology. This addition helps to secure Oxford's extensive base for the study and conservation of wildlife. I should add here also the generous benefaction announced for a new Chair of Ornithology in honour of Luc Hoffmann.

Furthermore, Mr James Martin has committed major funding over a number of years to build up an institute for the study of Science and Civilisation, which will provide the context for rigorous academic study of the complex relationships between scientific innovation and the condition of our world—a set of dilemmas strongly perceived but often little understood or seen in the round. This will be located in the Sa‹d Business School. I should say here that fundraising for the Sa‹d Business School has now reached £50m, which is a considerable achievement. Finally, choosing among other areas, let me just note the endowment of the Chair in Comparative Philology by Richard Diebold, who thus enables us to continue the study of those subjects where there are few academics but whose maintenance is necessary for the ecology of academic knowledge which it is the purpose of a university like this to protect.

This year again, I have been impressed and reassured by the vitality of this University as seen in its activity. The vitality is such, indeed, that my account must necessarily be selective. Thus, for example, we have opened this year the new Medical Sciences Teaching Centre, the Edward Abraham Building in the Dunn School, the Burdon Sanderson Cardiac Science Centre, the Tentorium for the support of the University Parks, the Centre for Clinical Vaccinology and Tropical Medicine, and the Oxford Centre for Diabetes, Endocrinology, and Metabolism. The swimming pool, the Centre for Gene Function, the second phase of the Social Science building, and the Chemistry building are either close to or essentially finished; the new Information Engineering Building is under way.

Grants and programmes have generated work in areas as diverse as the changing character of war, the evolution of Chinese deserts, arthritis, the effects of serotonin manipulation in the brain, the fluctuations of the Patagonian ice fields, the eDiamond project's development in the storage of digitised mammographs, integrative physiology, and the cultural origins of ethnographic collections. An award from DfID has established a Development Research Centre on Inequality, Ethnicity, and Human Security; a new Institute of Particle Astrophysics and Cosmology has been created, thanks to a gift from Adrian Beecroft. One of the first of EPSRC's Portfolio Partnerships has been established with Bristol in Chemistry, whilst a very substantial grant from EPSRC has enabled us to start an innovative Doctoral Training Centre where graduates with a physical sciences background do dissertation work at the life sciences interface. I welcome also the graduate exchange programme newly established in Modern History with ENS Cachan at Paris.

The quality of the work of our colleagues continues to be recognised by abundant elections to Fellowships in the British Academy and the Royal Society. Our technology spin-out activity continues at a high and successful rate—indeed, two Oxford graduates have been named by MIT among its list of 100 Top Young Innovators around the world this year. However, let me conclude this section with two initiatives which illustrate neatly the breadth and quality of our embrace. On the one hand, a Queen's Anniversary Prize has again come to Oxford, won by the Refugee Studies Centre for its outstanding world-wide work in this area. On the other, Oxford is partnering with a team from the University of Toronto in a Structural Genomics Consortium in a path-breaking study of 350 human proteins, funded by public and private sources in Britain and Canada.

It is right that I should also recognise the achievements of our students. Once again, I can only be selective but I note that this year one of our students has been named International Student of the Year (by the British Council); others have won the Times Law Award, the Royal Society of Chemistry's ExemplarChem Prize, the Guardian student critic of the year, the Guardian sports writer of the year, and the British SubAqua Club Medal. Elsewhere, I note with pleasure that the first Oxford–Princeton exchange students have completed their time successfully. I cannot fail to recall in this context the breathtaking, breathless victory in the Boat Race against all known odds—a drama which should not make us forget the impressive clean-sweep achieved by the women's eights. With such variety of talent, energy, and enjoyment of the opportunities in Oxford, I am glad to see the completion of the first year of our Bursary scheme which demonstrates the collegiate University's commitment to recruiting students wherever they come from. I also emphasise and welcome the contribution made by our own students to this effort—most notably this year, their production of a video for potential applicants. OUSU has, moreover, moved into Thomas Hull House, impressive modern premises on Bonn Square, secured with the help of the Land Agent.

Finally, let me record some moments of pleasure. We celebrated the 400th anniversary of the Bodleian Library by presenting honorary degrees to four leading figures in the care of libraries around the world, thus recognising both the universality of knowledge and scholarship and the status of our great library in the world. We also celebrated the centenary of the Rhodes Trust by, among other things, presenting honorary degrees to four Rhodes Scholars who have made an outstanding mark in their professions around the world. The gift of Cecil John Rhodes has had an exceptionally beneficial impact on Oxford, most notably by the generations of bright and vigorous students it has brought to us from abroad and by the contribution that they have made to both our international character and our international reputation. Perhaps I might conclude with one further pleasure, less obvious, possibly more personal, and less the pleasure of a moment than one with us at all times. We have become the first (as I understand it) major higher education institution in the UK to purchase its energy requirement entirely as 'carbon emission free' hydro-electric power.

So, while it is often easy to forget in the stresses and sometime tribulations of university life, we ought to remind ourselves of the vitality that inhabits this institution and of the exceptional range and quality of the collective and individual achievements of the University and its members.

In my Oration last year, referring to the academic year 2001–2, I indicated that we were expecting the imminent publication of a White Paper on the future of higher education. Indeed, that academic year was characterised by an atmosphere of waiting—waiting for the outcome of the Spending Review, waiting then for an announced White Paper. While we had a general understanding of the three-year pattern of investment in higher education and in research from the Spending Review, we had no information on the actual figures in detail at the beginning of last October. We did not get detailed funding announcements until the publication of the White Paper four months later. Of course, I fully understand that a new Secretary of State, taking office at that juncture, would wish to review carefully the substance of what was being prepared. After all, when I last spoke to you, we did not know what colour the Paper would be. However, it must be said that such financial uncertainty is not helpful for the effective management either of the sector as a whole or of individual universities.

The White Paper is a curious amalgam of different elements. On the one hand, it contains a set of announcements about financial matters; on the other, it presents a number of mechanisms—devices might be more accurate—through which to approach a number of specific problems. I myself have found it difficult to discern in this document a firm vision of what higher education is supposed to look like in ten or so years or to identify how in practice individual institutions might pursue effectively a mission derived from their individual strengths as the White Paper advocates. Of course, this document is not a text sufficient unto itself, but is surrounded by a series of other texts—official speeches, consultations or other documents, and commentaries—through which shapes and emphases appear. However, in practice, these do not always appear particularly stable. Modifications seem already to be occurring to a number of what appeared to be declared directions of travel. Finally, media comment has been so concerned with only one aspect that this has obscured matters that are arguably more important for the future health of universities.

In reality, the funding and organisation of higher education is undergoing a major re-examination. Much of this affects this University directly. In the last week of September 2003, we had on the desk eleven major consultative documents which we had received from bodies such as HEFCE and OST since May. They covered almost every aspect of the University's operations and in particular its funding; they were not in content minor enquiries about possible adjustments. I discount here the usual number of lesser documents. Taken with the White Paper, all these initiatives present a number of serious issues and perspectives upon which I ought to comment here.

Before I do so, however, let me make a few general points. First, we must realise that the uncertainty, which I had hoped would be confined to the academic year 2001–2, will last for an unpredictable period. I have every sympathy with colleagues who ask for certainty within which to make planning and financial decisions. At present, I can only say that the fact of life is that uncertainties litter the environment whose constraints upon our activity we cannot ignore. Second, these eleven documents (and perhaps there are more to come) represent a heavy burden on the administration in terms of the amount of information sought and the hours spent composing responses. I should add, in parentheses, that the University has to prepare itself for the QAA's institutional audit in a few months' time; it has to submit a self-evaluation document which on its own is a significant piece of work. The consequent demands made on colleagues in other parts of the University are bound to cause impatience. Grousing about the administration is a necessary therapy in every institution. However, I hope that colleagues will understand that this is not of our making and that they will be forbearing if other business is delayed, since in the context of budget constraint extra staff cannot be taken on to deal with the growing workload.

Indeed, the weight of this work (and quite a number of the proposals) does give one some pause when considering the 'light touch' that has been promoted or the proposition that 'universities must be free to take responsibility for their own strategic and financial future', as the White Paper puts it. The government has set up a task force under the Vice-Chancellor of Warwick University to examine regulation in the sector. I look forward to seeing whether the critical words it will certainly offer on some of these proposals will be met by more than affable words.

In the debates following the White Paper, let us not forget its positive aspects. It did accept clearly and deliberately that higher education has been seriously under-funded, that we do not compare well nationally with other comparable societies and with current major investment in Asia, that staff–student ratios have suffered, and that there is a real danger of decline. This had not been publicly accepted before. Furthermore, it did accept explicitly the high quality of English higher education, the excellence of its provision in teaching and research, and its flexibility in responding to a changing world. This is not something that we had been accustomed to hear. It is sad though somehow unsurprising that this aspect of the White Paper has not been much mentioned in the subsequent public commentaries. Finally, though there were and remain uncertainties in meaning and potential practice, the White Paper did depart from the perception of higher education as a uniform sector and did assert the importance of the system becoming variegated through each institution's proper development of its own distinctive strengths.

We must recognise that courage was required in government to say these things and that the White Paper does represent a direct attempt to address the problems with some solutions. Indeed, I think that it represents a significant moment of change in government attitudes to higher education, even if public authority may not always adhere to all the directions it outlines and even if progress may be too tortuous or slow for those working in universities.

At all events, we are now in a post-White Paper world, even if legislation has not been laid before Parliament. In reality, legislation is required for only some specific parts of the White Paper, which was in many ways much more of a public statement of policy. Indeed, I should remark in passing that it was not a statement of policy options, as was made clear by the rejection of all modifications suggested in response to its consultation. The eleven consultation documents, to which I have referred, concern proposals drawn up either as a result of matters outlined in the White Paper or else commissioned before or outside the White Paper, such as the review of the Research Assessment Exercise or the Office of Science and Technology's proposals on funding the full economic cost of research.

The White Paper contains a host of proposals. I want to concentrate here on just a few themes (either from the Paper or from other initiatives) that do seem to affect this University particularly. These are: matters concerning technology transfer and the relationship with business, more particularly the Lambert Report; the whole issue of self-paying fees and access; and the funding of research-intensive universities including the reform of the RAE, the OST proposals and other proposals and decisions emanating from HEFCE. I choose to speak about these things in this order simply because it fits the structure I have adopted for this Oration.

The University's record in technology transfer has been a regular theme in these Orations. It is widely recognised, not least by the Minister Lord Sainsbury recently, that Isis Innovation is a model for how to transfer scientific knowledge into the economy. We can be proud of our activity in this area which government regards as another principal function of universities. We should continue to say this loudly. The White Paper foreshadows the use of additional HEIF money essentially to support activity in less research-intensive institutions, as part of a general policy to separate funding streams between different types of university. Oxford cannot therefore expect to participate very much in the increased sums available in this stream during the next few years. The proposed Knowledge Exchanges will belong to the less research-intensive institutions. It remains surprising that those who are most successful at knowledge transfer should not be further encouraged.

This University should not, therefore, be anxious about the Lambert Report in so far as it deals with these matters. Indeed, his preliminary account demonstrates that he believes that the sector performs well in this domain as well as in the general conduct of its business. I was somewhat taken aback to read a discussion of Oxford and Cambridge in this document (the only universities mentioned by name). I was glad to see recognition of Oxford's changes in governance, but dismayed to find no acknowledgement of our new financial and planning arrangements together with the impending introduction of a new financial accounting system. There was no explicit mention of the two universities in the public terms of reference for this report. Mr Lambert has assured me that he had no other remit. So, I look forward to the final report—I look forward with interest and resolve.

My second theme is that of self-paying fees, announced in the White Paper, and access, further elaborated in the subsequent document Widening participation in higher education. It is important to recognise that these two things do go together. Their connection is the expression of the government's double objective of sustaining excellence of provision and implementing social inclusion. However mildly the proposals about the Office for Fair Access are formulated, it is not the government's intention simply to increase the income for teaching without opening doors for talented school-leavers from disadvantaged backgrounds. There is nothing inherently wrong with this. We are explicitly committed as a University to seek our own interest in recruiting the brightest students irrespective of background. But we do have principles about the conditions under which the student body is composed. I have expressed them in previous Orations and elsewhere. There is a fine line between pursuing every means to provide proper access within our principles and a Faustian bargain where we allow the composition of our student body to be determined by other considerations in exchange for some additional income. We shall have to exercise great vigilance on this point.

Let me say at the outset that I think that the government is proceeding with great care here. Care has been taken in the texts in front of us to avoid direct regulation, to circumscribe the remit of the proposed OFFA, and to acknowledge the independence of universities' criteria and judgements. Similarly, though it is too early to give a considered evaluation of the recently arrived consultation from Professor Schwartz, I do note that the emphasis on fair admissions, as distinct from fair access, is welcome. That does make much clearer the nature of the issue, which looser concepts have obscured by lending themselves to the interpretation that government simply desires to force universities to remedy the defects of certain parts of the secondary education sector which certainly demand more wide-ranging social action. Nonetheless, this is still uncomfortably uncertain terrain. There is a conflict of principles, many interests are at work, and the endarkening effect of media comment is palpable. We have to engage actively in the process leading to an outcome.

Nowhere is this debate and uncertainty more visible than over the proposal to increase self-paying fees to a permissible maximum of £3,000. There appears to be a possibility that legislation will not succeed. Whatever one's views on the proposal, there is no doubt that that would throw into question the whole set of policies and relationships laid out in the White Paper and surrounding documents. Very few of those who accept the need to raise these fees do so gaily. It feels like a major cultural shift away from long practice in higher education, though the principle was in fact introduced in the 1990s.

In brief, the argument against fees rests above all upon their deterrent effect for those from a low-income background, being thus contrary to the objective of broadening social participation. The desired expansion of higher education appears to suggest that it is indeed a public good and should therefore be funded from general tax revenues. The contrary principle was the one supported in Congregation by a two-thirds majority. That holds that, though a public benefit, higher education does provide a benefit to individuals in life-enhancing ways which can and should be reflected in some personal contribution to cost. This does not deny that there is a burden here—one which thirty-five or more years of students have not borne. But this view points to the mitigations in the proposed scheme which mean that no student will have to pay upfront, that the state will still fund the current level for students from low-income backgrounds, that payments are adjusted to earnings, and that no interest is levied.

Universities themselves must actively address the issue of deterrence. The collegiate University of Oxford already has in place a joint bursary scheme. I do believe that, if these fees were to come in, such a scheme would be seen by us to be a continuing necessity. Oxford has always stated that it would work to see that students capable of admission to Oxford are not deterred by financial considerations alone. Indeed, it is central to our sense of our mission that we should recruit the most able students, wherever they come from. We must therefore act in this direction.

Of course, the reason that this has become a critical issue now rather than at another time is the reality of the under-funding of the sector, recognised by the White Paper. At Oxford, the deficit on the University's teaching account (that is, excluding the teaching account within each college) is £23m. We know that the measures taken by the government will not entirely remedy the under-funding of higher education. We note too that a recent report shows that by 2010 demography will bring perhaps as many as 200,000 extra school leavers qualified to enter universities under Robbins definitions.

The weakness of the case of those who oppose additional self-paying fees is that they have no serious answer to the structural shortfall. It is not convincing to argue that the state should pay. Even if taxpayers agree either directly or indirectly to pay more tax, public revenues will inescapably go to the collective public services that all citizens require—health, pensions, communications, etc. A graduate tax is not a credible alternative. No hypothecated tax has ever remained linked with its object in this country—witness the Road Fund Tax. It would not put money to the universities directly for teaching done. The revenue would soon be absorbed into general revenue and the situation of universities would not have changed. Equally unconvincing is the idea of some annual fee directed to the universities, comparable to the TV licence. It would take too many years for income to begin to flow to universities; universities would have to bear the heavy costs of collection which would either drive up the fee or reduce the net income to ineffectual levels; the leakage would be significant.

The fact is that without present remedy there is a serious risk that the future will be marked either by a merciless decline in the quality of higher education offered to young people or else in a restriction of higher education to fewer of those enabled under current definitions to benefit from it. This is essentially what the White Paper states.

The broad envelope of policy within which all these documents sit remains much the same. The government continues to be committed to supporting excellence in higher education and at the same time using higher education as a mechanism for social inclusion. I have commented in a previous Oration on the potential tension between these objectives and this continues to be visible in the practical details of the work being taken forward. The general strategy of public funding is clearly to move towards a differentiation of function—and thus of funding structure—between, on the one hand, universities concentrating on high-quality, intensive research and, on the other, those dedicated to inclusive education and innovative skill training. How firmly this direction can be sustained in practice over time is unclear. It is not clear whether this will simply redistribute inadequate funding under different addresses. It is not clear whether the separation of research and teaching vocations is either desirable or possible in this way. The distribution of 4 and 5 research-rated departments through the sector shows the difficulty and raises the question of the future of universities in the middle of this segmentation of the sector.

As far as this University is concerned (and those like it), we have welcomed the spending review announcement of significant extra investment in research for the triennium which we are now entering. However, there is a number of features which, when allied to some of the current initiatives, are troubling. We really do not know whether levels will be maintained, let alone increased, in the next spending review. We know that in the current triennium the funding is end-loaded with an upward curve in 2004–5 and 2005–6. However, we do not know in detail what the distribution will be; we do not know whether the bases of calculation will remain constant; we do not know whether this money will be expected to bear additional categories of expenditure; we do not know whether the increase will off-set the depletions that are already beginning to occur and others that are implied by some current initiatives.

Moreover, current proposals continue the pattern of ring-fencing funding for specific programmes, thereby reducing the amount of money available for the block grant to sustain general university activity. First, HEFCE's Review of research funding method proposes a number of formula dilutions—particularly a modification of the new 5** mechanism and the removal after the next RAE of some QR volume measures including, most damagingly, charities income, together with capping transitional arrangements until then. In exchange, it offers £8m for capital purposes in each of the two years 2004–6, allocated on formula to the four institutions with the highest research income. It is not clear that our share (which appears to be restricted to capital purposes) would cancel out the down-turn which, while as yet not exactly calculable, is likely to ensue.

Second, HEFCE's proposals for Developing the funding method for teaching from 2004–5 include a reorganisation of price groupings, together with the movement of funding towards foundation degrees and the replacement of the postcode premium allocations tied to the academic performance of the school attended. We see some lessening of the general money available to us here. More difficult is the proposal to calculate the Human Resources money (now to be incorporated into the base line) as a function of the T-grant rather than T and R as previously which, as the document recognises, will reduce the size of the HR grant to research-intensive universities (possibly by 40 per cent in our case).

Third, the OST has raised the issue of the recovery of the full economic cost of research. Clearly, the University believes in full economic cost recovery. The government has agreed to put up overhead payments but the percentage has fallen back from some earlier suggestions to a level well below full economic cost. The OST proposals for the somewhat longer term seem to suggest that the QR funding from HEFCE should be used to make up the shortfall between research council grants and the full economic cost. Although the matter is still uncertain in its shape, there is a clear implication that the HEFCE research-funding stream could be sucked away from the general purpose for which it is intended towards high external research-grant earning units. There needs to be discussion with OST about the practical issues of the support of other research-grant earning units. More particularly, we are concerned about the future of the charity-funded research, whose lack of overhead from the funders is currently recognised by a modest HEFCE overhead included in QR but apparently jeopardised in these proposals. I think that all universities that earn research grants have these concerns.

As I have said, we do not know exactly into what numbers these proposals will be translated, nor do we know whether the increase in research support projected in the last spending review will compensate for the outcomes that we see being sketched. I believe myself that these proposals may threaten, inadvertently perhaps, the bi-polar distribution of function that the government appeared to have adopted. In their detail, the proposed funding mechanisms appear to move some money away from the research-intensive end; such mechanisms continue to be used to enforce desired behaviour patterns on the sector. What we must understand is that the increases announced for this triennium will not come through directly pro rata into individual institutional budgets. I doubt whether we shall see anything like the increases that one might innocently have expected from the raw figures.

Let us be clear. The University remains financially strong and, as we have seen, it remains full of vitality expressed in high-quality work. However, the dilemmas are also visible. They are expressed principally in the divergence between the growth of external income (principally research grants and contracts) and the sluggishness of the core grant from HEFCE. This latter—whether QR for the infrastructure of research or QT for teaching—is meant to provide for the core, from the salaries through to the transfer to colleges. The issue is how we can maintain our core income in touch with the growth of our activity. Core income has also to meet cost inflation from increases such as those in National Insurance, pensions, ordinary insurance, and a purchasing price index above the RPI upon which allocations to the sector are based, together with the cost of regulation (which is not to be confused with necessary accountability). We know that the prices paid for teaching are woefully below cost and that the QR has not kept pace with the cost of research. The reduction of activity does not appear to me an option—it is the very expression of the vitality of our institution.

In these circumstances, budgets are bound to be difficult for the time being. Colleagues can reasonably wonder why the increased investment in science, announced so loudly, has not come through in detailed allocations. They need to remember, however, three things—first, that this coincided with hidden cuts, especially in teaching income; second, that this coincided with some sharp increases in costs and reductions in other income as a result of both world events and government initiatives; and, third, that in the previous year Council had put in a significant amount from reserves in order to smooth the funding hollows whilst the Spending Review worked its way through. These matters and the allocation structure were well explained by the Registrar in an article in the Oxford Magazine. At the same time, departmental and faculty activity does call upon other activity elsewhere in the University and increased activity requires extra activity there; that does have to be funded.

It is certainly the case that we must continue to scrutinise our costs and that we must also have a care to sustaining the quality of our activity or, where necessary, to improving it. Equally, we have to scrutinise with care plans for additional activity with an eye both for quality and for financial viability. We do now have in place a general system for ensuring that all new proposals are accompanied by a business plan, which is seriously tested.

It is perhaps at this point that I should speak of the academic plan which, after a long process of elaboration by the panels of EPSC, will be coming before appropriate bodies in the collegiate University. In particular, I have argued before that there is a good strategic and academic case for increasing the number of graduate students and investing in overseas students at that level. Briefly put, the case is as follows. The expansion of first-degree study in the UK (but also elsewhere) will lead to an eventual erosion of the value of the first degree (though less so here, perhaps, than in many places). There should follow therefore a growth in the demand for differentiation by further study, at least to Master's level. At the same time, the growth of good first-degree level provision in most countries from which we have recruited undergraduates, and more generally, is moving overseas student demand towards postgraduate study. Some development at Master's level will provide a pool of talent for our doctoral programmes. International students undoubtedly offer us a considerable opportunity for outstanding students. Furthermore, international students are the very expression of our character as a university with a world reputation and presence. Investment in international students is investment in our future standing and relationships.

These academic considerations must be the prime mover of our policy. However, it is permissible to enter now some financial consideration. The fact is that British and European students are a net financial loss to both University and colleges. This will remain the case, albeit less so, even if legislation brings in the proposed additional fee (and its full effect would not be felt until 2009). This is not necessarily an argument for reducing the number of such students; but it is an argument for thinking about what we can do outside the arena of the controlled economy. In doing so, we would be following the example of other British research-intensive universities.

Of course, there has been some strong movement in these directions over the last two years. The colleges have responded magnificently to the pressure which that has involved. The non-collegiate University should be and is properly grateful to them. We must not now be tardy in pursuing focused discussions and decisions on issues such as numbers, recruitment procedures, sensible arrangements for accommodation and supervision, and the colleges' special interests. These matters are in the competent hands of the Pro-Vice-Chancellor (Academic) and the Chairman of the Conference of Colleges.

The University is in an interesting condition. To continue that eighteenth-century metaphor, I may say that we are pregnant with our future. We are in good health and we are mostly equipped now to deal with it. But we do not know exactly what it will look like nor really what character it will have. We should understand that the state is not going to withdraw from active regulation of higher education for the foreseeable future. The consequence of the end of the social-democratic state as provider of services and benefits has turned the state into a customer and a controller, something which it has not yet learned, I think, to be very good at. In parallel, the appearance of an 'audit society' seems to be eating at the cherished autonomy of universities in the Anglo-Saxon tradition, as some of the recent initiatives appear to show. In a university like ours, composed of many parts, it is most important that those parts do not each disappear into its vision of its particular future but, by looking together at the issues that do and will confront us, ensure that the sum of the parts remains greater than the parts themselves.

Now in conclusion, I should turn to report the changes that come upon us with each turn of the academic year. I welcome new Heads of House. The Very Revd Christopher Lewis has been appointed in succession to The Very Revd John Drury as Dean of Christ Church. Dr Ernest Nicholson will be succeeded as Provost of Oriel during the coming year by Sir Derek Morris and Dr Glenn Black will be Acting Provost in the interim. Professor Andrew Goudie follows Dr Dick Repp as Master of St Cross, while Professor Bernard Silverman replaces Professor John Barron as Master of St Peter's. Sir Neil Chalmers will enter office as Warden of Wadham at the beginning of 2004–5 in succession to Dr John Flemming, whose untimely death we remember with sorrow. In the interim, Mr Jeffrey Hackney will be Acting Warden.

I should also welcome Professor Nigel Thrift in succession to Professor Peter Newell at the head of the Life and Environmental Sciences Division, Ms Jennifer Wood in succession to Mr Peter Hill as Director of Estates and Surveyor to the University, and Professor Jim Kennedy in succession to Professor Keith Thomson as Director of the University Museum of Natural History. By the same occasion, I wish to thank their predecessors for their commitment and energy in these important areas of the University.

Finally, let me record the happy news of the accession of St Stephen's House to the status of Permanent Private Hall.

Many eminent colleagues have retired this year, having served the University with distinction: Professor I.J. Aitchison, Professor of Physics; Professor J.C. Briden, Professor of Environmental Studies and Director of the Environmental Change Unit; Professor J. Burley, Director of the Oxford Forestry Institute; Professor C.G. Clarke, Professor of Urban and Social Geography; Professor A.J. Downs, Professor of Chemistry; Professor K.G. Dyke, Professor of Microbiology; Professor R.G. Hood, Professor of Criminology and Director of the Centre for Criminological Research; Professor A.M. Hudson, Professor of Medieval English; Professor O. Hufton, Professor of Modern History; Professor J.J.B. Jack, Professor of Physiology; Professor R.A. Mayou, Professor of Psychiatry; Professor H.M.R. Mayr-Harting, Regius Professor of Ecclesiastical History; Professor I.D.L. Michael, King Alfonso XIII Professor of Spanish Studies; Professor R.A. Pring, Professor of Educational Studies; Professor D.A. Roe, Professor of Palaeolithic Archaeology; Professor G.S. Smith, Professor of Russian; Professor J.J.A. Stockwin, Nissan Professor of Modern Japanese Studies; Professor P. Strohm, J.R.R. Tolkein Professor of English Language and Literature; Professor C.C.W. Taylor, Reader in Philosophy; Professor J.T. Triffit, Professor of Bone Metabolism; Professor J.S.K. Ward, Regius Professor of Divinity; and Professor M. Williams, Professor of Geography.

This past year has also seen the retirement of colleagues who leave academic posts after long service to the University: Mr T.J. Binyon, Dr S.P. Brock, Dr G.A. Brooker, Dr P.A. Cox, The Revd M. Everitt, Dr A.M. Finch, Dr R.J. Hawkins, The Revd R.G. Morgan, Mr J.H.W. Morwood, Dr G. Myatt, Dr R.C. Ockenden, Dr J.V. Peach, Dr R.M. Pensom, Dr L.A. Siedentop, Dr C.B. Snowdon, Dr R.B. Stinchcombe, Mr R.R. Stuart, Mr W.E.S. Thomas, Mr F.B. Thompson, and Dr C.J. Wood.

Still others have retired who have held important research or administrative posts in the University: Ms J. Brittain, Mr R. Buckton, Mrs S.J. Busby, Dr E. Cameron, Dr C.K. Chen, Mrs M. Clapinson, Mr D.B. Collins, Mr E.E. Davies, Mr P. Griffith, Mr D.M.M. Hall, Mr J.P. Hart, Mr A.M. Lodge, Dr A. McConnell, Mr J.D. Mittell, Dr F.P. Moore, Dr D.C. Owen, Mr G. Robson, Mr D. Scroggie, Mr P.D. Shield, Dr R.T. Stearn, Mrs K.B. Stevens, and Miss B.M. Tearle.

I record with sadness the names of those colleagues who died this year while still serving the University: Mr A.E.N. Gray and Mr I.Q. Grice, both of the Bodleian; Dr I. Kogan, University Lecturer in Theoretical Physics; Ms P.A. Smith of the Environmental Change Unit; Mrs P. Southcott of the Wellcome Trust Centre for Human Genetics; Dr S.J. Trout, Research Assistant in Pharmacology; Dr P.J. Walker, Senior Research Assistant in Physics; Professor R.H. Ward, Professor of Biological Anthropology; Mr S.A. West from Clinical Medicine; and Dr K.V. Wilkes, CUF Lecturer in Philosophy.

We remember with gratitude the lives and service of former colleagues who have died in retirement during the past year: Dr A.M. Barnes, Mrs D.M. Bednarowska, Lord Blake, Mr L.W. Calverley, Mr R.S. Dawson, Mr D. Day, Dr A.C.R. Dean, Miss A. Elliott, Dr H.G. Epstein, Miss P. Gradon, Sir John Habakkuk, Professor W.S. Hemp, Mr R.A. Hodgkin, Mr E.J.G. Howell, Mr R.R. Inskeep, Dr M.J. Leask, Dr G. Marshall, Mr J.O. Prestwich, Dr J.M. Roberts, Dr D. ter Haar, and Dr P.J. Walker.