Business secretary Vince Cable said that the number of international students in British universities has fallen sharply because they do not feel welcome.

His warning came at a fringe event on 16 September to discuss universities and growth at the Liberal Democrats party conference. Cable said that a lot of students who would normally come to Britain to study have gone to America and Australia where they think they will have a "warmer welcome".

The Liberal Democrat cabinet member said, "There are lots of perception issues particularly in India where the message has got back that the British do not what overseas students. Numbers have fallen sharply and students have gone off to the States and Australia."

Cable said that around £17bn is generated each year by universities, £10bn of which comes from overseas students through their fees and expenditure. But the issue of overseas students was a controversial one, he added, because if foreign students stay for more than one year they are classified as immigrants and counted under the government's immigration cap.

Cable added that home secretary Theresa May had tightened the regime on immigration, but that her decision not to impose a cap on overseas students where we had come out was "reasonably sensible". However Cable branded restrictions on post-study work, with those earning enough allowed to stay on, as "not perfect".

Other speakers at the event, which was sponsored by Bright Britain included Shami Chakrabarti, the chancellor of Oxford Brookes university; John Longworth, director general at the British Chambers of Commerce; and event chair Michael White, assistant editor and former political editor of the Guardian.

Longworth agreed that overseas students were valuable to the UK economy saying, "We need to attract the brightest from around the world." He also said that if our children and grandchildren are to afford a high quality of public services like the NHS and welfare we need to build up the economy now.

Young UK businesses are being hoovered up by foreign and multi-national companies, said Longworth, before asking, "How are we ever going to have a Cisco or an Apple in the UK if the business disappears before the first stage of development?"

A large part of the debate centred on whether investment should go to higher education or further education. Chakrabarti said that education must be for the world of life, not just the world of work. "I am not stuck in the mindset that it has to be classical subjects and we cannot be investing in more vocational subjects. I think it is good for the economy and the country to have young people in full time education for longer."

Chakrabarti expressed shame that "this generation of young did not warm the planet, and crunch the credit and start wars, real and metaphysical, and [yet] they are going to have to work longer and harder for less remuneration and more taxation than my generation of 40-somethings who screwed everything up."

She added that from a democratic perspective, citizens are more challenging, active and questioning, and capable of holding the powerful to account when they have been to university, saying that hard evidence also shows more graduates are good for the economy. "Nine out of 10 graduates still get jobs within three years of leaving college. It works politically, constitutionally democratically and economically as well," she said.

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