Before the expansion of higher education, some leading figures in Britain’s university sector argued that universities were not there to serve the needs of business. You only appreciate the revolution that education and society have undergone when you realise how very eccentric such a view would be today.

Now Universities UK, which represents all universities, and the CBI are to collaborate on an initiative to find out how universities can better serve the economy.

“One of the roles of British universities is to prepare graduates for employment,” said Professor Rick Trainor, Universities UK’s new president, while revealing the joint programme.

That will cheer many in business. The expanded university sector is turning out more graduates than ever before and yet the Association of Graduate Recruiters complained in January that many of its members could not find graduates with the right “soft” skills – those that business says make graduates employable.

Meanwhile, industries that rely on recruits with expertise in science, technology, engineering and maths (the so-called Stem subjects) complain that too many young people are avoiding these “harder” subjects.

Gordon Brown may talk Britain up as a real contender against the emerging Indian and Chinese economies, but industry warns that we risk being knocked into an economic corner because our education system is not producing enough people with the right skills.

Richard Wainer, the CBI’s principal policy adviser on education and skills, points to a new survey for proof of a very dissatisfied business community.

The survey of CBI member firms found that more than half of employers were dissatisfied with school leavers’ literacy, numeracy and “employability” skills (such as team working and problem solving) and that just over a quarter felt the same about graduates.

One of the disappointed employers, Sir Terry Leahy, chief executive of Tesco, told a CBI summit on skills last week that Tesco would improve the quality of its training but would not “act as a bandage or a sticking plaster for the failures of some parts of our education system”.

Nine out of ten employers in the CBI survey thought the government’s first priority should be ensuring that school leavers had basic skills, and one third said another top priority ought to be increasing the number of Stem graduates. “Only in the Stem subjects are employers interested in the quantity of graduates,” said Wainer. “In every other subject, the concern is quality.”

Trainor, while believing that universities are already turning out good graduates with a lot to offer employers and the economy, admits that there is always room for improvement.

“Each generation brings a different set of skills than the one that went before,” said Trainor. “This generation, for example, offers good IT, verbal expression and creativity skills. Our graduates don’t always get enough credit, and sometimes a nostalgia factor creeps in.”

He said that every generation felt that the one that followed was deficient in some way.

Wainer does not argue that today’s graduates are necessarily of a lower quality than previous generations. But he does say that global economic competition requires higher skills.

It is early days - the new joint CBI-universities venture has yet to have its first meeting. However, Trainor said he was looking forward to more “specifics” about what business wanted from graduates. Wainer said the CBI wanted to identify universities that were already getting it right and build on their practice.

Keith Dugdale, director of recruitment and resources at KPMG, the accountancy and consultancy firm, is a former university careers adviser and can see the issue from both sides.

He said KPMG struggled with the shortage of graduates with maths and science degrees but he identified another, more basic deficiency in skills.

“When we’re recruiting at a graduate level, it’s the lack of commercial awareness that is the biggest disadvantage for us,” he said. “They just don’t have a good idea of how business works. Also they don’t have an awareness of the importance of the client to us and of the need to build relations with a client and to understand their business.”

Learning about business should start in school, said Dugdale. “There shouldn’t be this gulf between education and the world of work. There should be engagement between the two.”

But he doesn’t blame only education for the gulf, saying it’s a two-way street. “Business has to offer more work experience to young people. That would give them an idea of how business works and whether they want to go in that direction.”

As well as looking to increase the employability of graduates, Universities UK and the CBI will be looking at ways of developing the existing workforce. The demographic time bomb could see older established workers getting a fairer deal than those in previous generations.

But while the government describes the latter initiative in terms of increasing numbers of workers with higher-education qualifications, Wainer said the CBI was less qualifications focused – “they are only part of the picture” – and would measure success in terms of a reduction in skills shortages.

“There are a huge number of qualifications out there that are not relevant to the skills employers need,” said Wainer. “In fact, having some qualifications is actually a negative because possession only proves that someone hasn’t been taught the right skills or that the skills are out of date.” Wainer said the CBI supported the expansion of higher education but regretted the tendency to push all young people down the university route.

So who will pay for initiatives that come out of the new discussions? The universities are already strapped for cash and Trainor hopes that government and industry will fund “employability” skills programmes.

Wainer said the government accepted that it should pay for initiatives involving basic skills and up to level 2 – the equivalent of five GCSEs – and industry agreed it had to make a financial contribution to the acquisition of higher-level skills that would directly benefit business.

This is not the first time education and business have tried to get it right for the British economy. But as global economic competition gets ever keener, there is an awful lot resting on getting it right this time.

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