Why is the Medical Research Council run by an arms manufacturer? Why is the Natural Environment Research Council run by the head of a construction company? Why is the chairman of a real estate firm in charge of higher education funding for England?

Because our universities are being turned into corporate research departments. No longer may they pursue knowledge for its own sake: the highest ambition to which they must aspire is finding better ways to make money.

Last month, unremarked by the media, a quiet intellectual revolution took place. The research councils, which provide 90% of the funding for acad­em­ic research, introduced a requirement for those seeking grants: they must describe the economic impact of the work they want to conduct. The councils define impact as the "demonstrable contribution" research can make to society and the economy. But how do you demonstrate the impact of blue skies research before it has been conducted?

The idea, the government says, is to transfer knowledge from the universities to industry, boosting the economy and helping to lift us out of recession. There's nothing wrong, in principle, with commercialising scientific discoveries. But imposing this condition on the pursuit of all knowledge does not enrich us; it impoverishes us, reducing the wonders of the universe to figures in an accountant's ledger.

Picture Charles Darwin trying to fill out his application form before embarking on the Beagle. "Explain how the research has the potential to impact on the nation's health, wealth or culture. For example: fostering global economic performance, and specifically the economic competitiveness of the United Kingdom … What are the realistic time­scales for the benefits to be realised?" If Darwin had been dependent on a grant from a British research council, he would never have set sail.

The government insists that nothing fundamental has changed; that the Haldane principle, which states that the government should not interfere in research decisions, still holds. Only the research councils, ministers say, should decide what gets funded.

This is the sort of humbug newspaper proprietors use. Some of them insist that they never interfere in the decisions their editors make. But they appoint editors who share their views and know exactly what is expected of them. All the chairs of the five research councils funding science, and of the three higher education funding councils (which provide core funding for universities), are or were senior corporate executives. These men are overseen by the minister for science and innovation, Lord Drayson. Before he became a minister, Paul Drayson was chief executive of the pharmaceutical company PowderJect. He was involved in a controversy that many feel symbolises the absence of effective barriers between government and commerce.

On 30 November 2001 the ­British ­government decided to buy large ­quantities of a variant of the smallpox vaccine called the Lister strain. The only company that possessed enough was a firm called Bavarian Nordic. On 6 December 2001, Drayson was among a small group of businessmen who took breakfast with the then prime minister, Tony Blair. At about the same time Drayson gave a donation of £50,000 to Labour. Soon afterwards, government officials sought to buy the vaccine from Bavarian Nordic. They were told that they were too late: PowderJect had just bought the exclusive distribution rights for the UK. So the government had to buy it from Drayson's company. It paid PowderJect £32m: £20m more than PowderJect had paid Bavarian Nordic. The prime minister's office and Drayson both refused to answer questions about whether the Lister strain was discussed at the breakfast in Downing Street. It is not clear if Drayson was aware at that time of the government's decision to choose the Lister strain.

Drayson doubtless rubs along well with the chairman of the Medical Research Council, Sir John Chisholm. He founded a military software company before becoming head of the government's Defence Research Agency (DRA). He was in charge of turning it into the commercial company QinetiQ, through a privatisation process that was completed while Drayson was minister for defence procurement. During this process, Chisholm paid £129,000 for a stake in the company. The stake's value rose to £26m when QinetiQ was floated. A former managing director of the DRA described this as "greed of the highest order". Lord Gilbert, a former minister of defence procurement, remarked that "frankly the money made by the leading civil servants was obscene … They did not contribute anything to the turnaround of the company, it was the work of the research staff that made the difference." Chisholm remains chairman of QinetiQ. Is there anyone outside government who believes that these people should be overseeing scientific research in this country?

In March Drayson told the Royal Society that "the science budget is safe … there will be no retreat from pure ­science". A month later this promise was broken, when the budget transferred £106m from the research councils "to support key areas of economic potential": which means exchanges of staff and research with industry.

Science policy in the UK is now governed by the Sainsbury review, which the government says it will implement in full. It was written by the Labour donor, former science minister and former supermarket chief executive, Lord Sainsbury. The research councils, the review says, should "be measured against firm knowledge transfer targets" to show that they are turning enough science into business. They have been told to fund £120m of research in collaboration with industry. This has been topped up with £180m from the regional development agencies. The government is also spending £150m "to change the culture in universities: boosting the work they do with a whole range of businesses and increasing commercial activity". All this is another covert bailout, relieving companies of the need to fund their own research.

The economic impact summaries they now write ensure that all researchers will be aware that the business of universities is business. As the white paper points out, universities are already "providing incentives (for example promotion assessment)" to persuade researchers to engage with business. If your research doesn't make someone money, you're not likely to get very far.

Even judged by its own objectives, this policy makes no sense. The long-term health of the knowledge economy depends on blue skies research that answers only to itself: when scientists are free to pursue their passions they are more likely to make those serendipitous discoveries whose impacts on society and the economy are both vast and impossible to predict. Forced to collaborate with industry, they are more likely to pursue applications of existing knowledge than to seek to extend the frontiers of the known world.

Knowledge is not just about impacts. It is about wonder and insight and beauty. Much might never have an application, but it makes the world a richer place, in ways that the likes of Lord Drayson would struggle to perceive.