Don't send foreign students packing

Ascot this week, and Wimbledon next week always brings an influx of the well-heeled in June but it runs deeper than that.

Right across the financial spectrum the place is filling up as the tourist season gets into full swing. The numbers may or may not be up but it certainly feels as if they are.

However, economists tell us that one overseas student is worth eight tourists so, much as the promotion of tourism into Britain is worthwhile, it makes even more sense actively to encourage the brightest and best of foreign lands to come to study. It delivers a much bigger economic dividend. And in fairness the universities recognised this some years ago - they almost all spend large parts of the year selling themselves across Asia.

But the harder they try the more Government thwarts them.

As further proof that the Home Office is Whitehall's most dysfunctional department, the Border Agency has this year introduced a new points-based system for allocating permits to foreign students to come to study here. No one was quite sure what was so wrong with the old system that it had to be changed but the result, predictably enough, is disastrous. The implementation has been a fiasco, with embassies round the world not knowing what they are meant to do, applying the rules inconsistently and inevitably turning away or otherwise alienating many of those whom the universities have spent the previous five years trying to attract and have already given places to.

All over the world students whom British Universities are desperate to have, are being turned away. So of course once rejected the best students don't bother to reapply.

They go to the United States or Europe instead, and their brains and money are lost to the UK - probably forever.

Selling services overseas is the equivalent of exporting and at a time when every politician, government department and economist is saying that our best hope of getting out of the current mess is by export-led growth the Border Agency has in effect decided to blockade our ports to stop our exports. The cost and the lost opportunities caused by this nonsense can only be imagined.

Losing overseas students harms us in other ways. They pay far more in fees than British students so home-grown students are cross-subsidised by them and the cut in their numbers will mean that universities can't afford to educate as many Brits. Indeed it is worse than that. When there are no jobs for school-leavers it makes sense to encourage them to continue their education and improve their employability. But universities have been ordered to cap student numbers and face fines if they go above their limits. The reason? Government says it cannot afford any more student loans - so no more students.

In considering this policy we are expected to ignore as Government does the fact that it will be paying these non-working non-students just as much in unemployment benefit and other forms of social security as it would have had to offer them as a loan. So much for education being the key to our future.

What is depressing is that there is much more of this to come. Implementing a control system on student numbers - if thought desirable - ought to be quite easy and straightforward. Seeing them make a complete mess of something that simple, makes one fear the worst for what will happen when the cuts begin in earnest.

Banks actually need more cash

Economists do not agree about much, but there is a broad consensus that we cannot have a sustained economic growth without a healthy banking system.

Expansion requires capital to finance it, and that comes mostly from banks. If banks have no money to lend, then the expansion withers for lack of finance. Now — because no bank has collapsed for at least three months there is a temptation to think we are out of the wood but that is not the view of Governor of the Bank of England, Mervyn King.

Speaking at the Mansion House dinner on Wednesday he too stressed the link between credit availability and sustained business expansion and he made the point that many banks still have difficulty raising wholesale funds because "some banks are viewed as a worse credit risk than some of their customers".

He then put his finger on the nub of the problem which is that in the absence of properly functioning wholesale markets " it may take further additions to equity capital before the banking system will be able to supply credit at a price and on a scale to finance a sustained recovery".

That bleak message, that the banks will probably need a further injection of new capital before they are properly restored to health, seems rather more relevant to the immediate future of the UK than his remarks on regulation which got so much coverage.