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Financing universities and the knowledge economy

Laurence Hopkins

11 June 2010

Yesterday the Minister for Universities, Rt Hon David Willets MP outlined the coalition’s views on university funding. Willets argues that universities are “without a long-term viable future” and need to find cost-effective and flexible ways to teach. Higher education is one of the key drivers of our knowledge economy and the Minister is right to highlight the need for sustainable solutions to the financing higher education and exploiting its assets (both tangible and intangible).

Willetts is not the first to argue that the expansion of higher education cannot be borne entirely by the tax payer. Indeed, it was a key finding of the Leitch Review commissioned by the Labour government back in 2006, which recommended a ‘clearer sense of financial responsibility’ whereby the costs of expansion were shared among those who benefited – namely individuals and organisations. Restating this objective in 2009, the department of Business, Innovation and Skills noted in Higher Ambitions:

“Universities have enjoyed a benign financial climate over recent years. Growth based so heavily on state funding cannot continue and this confronts government and universities with a series of challenges... That is why the development of a diverse set of funding streams is important if the quality of higher education is to be maintained and improved.”

Universities have made positive steps towards financial diversification and our higher education institutions are less reliant on public funding as many of our main competitors in Europe. While public funding for higher education has increased by 25% in the last decade in real terms, total university income has increased by over 50%. Part of this growth has been driven by higher education exports including transnational education and fee-paying international students (8% of total funding to universities and colleges in 2007-08).

Despite this diversification and the introduction of top up fees by Labour in 1998, there has been less progress in sharing the cost of higher education with individuals and employers as proposed by Leitch. While student fees are the focus of today’s announcements, the role and responsibility of employers will also need to be addressed in future debates.

The Work Foundation’s research on the knowledge economy highlights the vital role that the expansion of higher education has played in improving innovation and productivity in the UK and sustaining our advantage in the world economy. Higher education is an investment that we all (government, individuals and employers) need to sustain and set policy accordingly. This will ensure that our institutions and graduates remain world class and will ensure that we have the right skills to support our growth industries.

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