The prime minister has created a new Department for Business, Innovation and Skills after scrapping the Department for Innovation, Universities and Skills (DIUS) just two years after it was formed.

Friday’s Cabinet reshuffle saw the DIUS merge with the Department for Business, Enterprise and Regulatory Reform (BERR) to form the new Department for Business, Innovation and Skills headed by Lord Mandelson.

Its other responsibilities have been moved to the Department for Children, Schools and Families (DCSF).

A government statement said that the move would create a "single department committed to building Britain’s future economic strengths". It will also bring policies for further and higher education closer to government business and commerce planning.

The DIUS cost £7m to set up just two years ago, when it was created from a combination of the universities and skills functions of the former Department for Education and Skills and science and innovation functions of the former Department of Trade and Industry.

Commenting on the reshuffle, Sally Hunt, general secretary of the University and College Union (UCU), said: "UCU is very concerned that this merger seems to signal that further and higher education are no longer considered important enough to have a department of their own. The fact they have been lumped in with business appears to be a clear signal of how the government views colleges and universities and their main roles in this country.

"Education has the power to change people’s lives, and if we are serious about the important role it can play in helping us out of recession, then we need experts in education at the helm, not business interests. We will be seeking an urgent meeting with, and assurances from, the minister that both further and higher education have clear and defined roles in the new department."

Pat McFadden, a minister from BERR, and the current science minister, Lord Drayson, will be secretaries of state in the new department.