Leading article: The benefits of a market in teaching and learning

These past few weeks have not reflected well on the state of higher education in this country. Figures released on Wednesday revealed a stark drop in the numbers applying for places at English universities. They also showed a fall in those applying to study history, philosophy, classics and fine art. These disappointing figures follow a survey of businesses revealing that many graduates lack the basic skills needed for employment. All this might suggest that the Government's higher education policy is in crisis. Some blame tuition fees; others the Government's ambitious admission targets. But both miss the point.

It must be recognised, first of all, that whatever problems tuition fees have thrown up, the decision to introduce them was correct. Our universities must be able to compete internationally - and if our top institutions are to hold their against the US Ivy League, the £3,000 limit on fees will have to be raised. Without a steady revenue stream, they will lapse into decline.

The recent criticisms of employers appear at first to support the philistine view expressed by the Higher Education minister, Bill Rammell, this week that fewer humanities students would be "no bad thing". But a closer look shows that the complaints of employers are not about particular subjects, but the general failings of some graduates in reading, writing and organisational skills. If some students are really so inept, they should never have been awarded degrees in the first place. What these criticisms expose is the inability of certain universities to impose proper standards.

Mr Rammell is not the first minister to make disparaging remarks about arts courses. But we must not fall into the trap of regarding higher education as simply vocational training. The benefits of university are more subtle than the Government seems to appreciate. Professional training is, naturally, an aspect of some degree courses. But the principle of "education for education's sake" still holds. The acquisition of transferable skills is one of the reasons graduates, on average, earn more. And the US shows that the humanities can still flourish in a competitive, fee-paying system.

But, of course, the US system is no panacea. College education there is not the engine for social mobility it ought to be. And although we do not approve of the Government's arbitrary 50 per cent target for school-leavers going on to higher education, we agree that there must be an expansion of the numbers. The Prime Minister is right to insist that there should be more students from working-class backgrounds.

We recognise, too, that there is a downside to tuition fees in that they deter those who fear running up debt (mainly the less wealthy). This is responsible for distortions, such as the number of students flocking to Scotland, which has held out against tuition fees. In time, though, if the market system is allowed to take root, these distortions should disappear. And when the cost of a degree reflects its true true worth, we are confident that higher education will still be seen as a good investment. In the meantime, the Government must make far greater efforts to encourage the creation of a generous bursary system to attract poorer students.

Some see higher education as a zero-sum game in which only a small number of people can benefit. This is not the case. Fifty years ago, our universities educated a tiny elite. But our country and its economy have changed enormously. And so has the rest of the world. Britain needs a well-financed, socially open and globally competitive higher education sector. Those who argue that it is impossible to achieve such a combination are languishing in complacent pessimism.