THE nation's economic future depends on an expansion in the number of Scottish postgraduate students, a leading sector figure has warned.

Professor Sir Timothy O'Shea, principal of Edinburgh University, said creating a larger pool of more skilled workers was vital to allow Scotland to compete in the global market.

His call comes alongside the publication of a major independent inquiry into postgraduate education across the UK which calls for urgent reform.

The inquiry by the Higher Education Commission warns the postgraduate system excludes poorer students and fails to produce sufficient numbers of highly-trained workers. Unless action is taken, the report warns UK companies will need to recruit foreign workers, or move their offices overseas, at huge cost to the economy.

Since 2001, the total number of postgraduate students in Scotland – including those from overseas, Europe and the rest of the UK – has risen by 41% from 40,120 to 56,580.

However, over the same period, the number of Scottish postgraduate students has stagnated, with numbers declining by 1.5% from 26,475 to 26,060.

Sir Timothy, who gave evidence to the commission, told The Herald the economic contribution made by postgraduates was "massive" in a wide range of industrial and commercial environments.

In the last three years, Edinburgh University has created 110 companies, the vast majority of which have been led by newly-qualified Phd students.

"There is a real problem and what is causing the problem is that people graduating from undergraduate degrees have been increasingly finding themselves in debt and are more cautious about taking a postgraduate course," he said.

"Scotland is better placed than England because undergraduate students do not pay tuition fees and are therefore less indebted and more likely to do Masters qualifications and we also have good formula funding for research. But if we were to invest more in Scottish postgraduates then that would help us in terms of the higher level skills required for the future economy as well as the leadership for new companies."

Alastair Sim, director of Universities Scotland, which represents university principals, said: "Looking across the world, it is increasingly the norm to stay on at university and get a postgraduate degree," he said.

"This is something Scotland will need to address for Scots if we are to remain competitive in a global economy and inter-national labour market."

NUS Scotland called for employers to help fund an expansion in higher education courses. Robin Parker, president of NUS Scotland, said: "It is absolutely right to identify postgraduate study as an area in need of reform."

A Scottish Government spokeswoman said Michael Russell, the Education Secretary, expected investment in universities to be targeted at postgraduate expansion in 2013/14.