Universities must rely less on the state as purse-strings tighten

Minister says cuts are manageable with greater diversity

By David Lammy

Every so often, higher education in England undergoes a revolution. Usually, that is closely linked to how universities are funded. It happened in 1919 when the block grant from public funds was introduced and again in 1944 when the Butler Act recast so much of our education system. It happened in 1962 with the introduction of universal means-tested grants covering maintenance and tuition for home students and it happened in 2004 when Parliament passed the Act that introduced variable fees.

Posterity will not add 2010 to that list of landmark dates. Anyone who has followed recent media coverage of university funding could be forgiven for thinking that the Four Horsemen of the Apocalypse had been spotted galloping down Whitehall in search of anyone in a mortar board. But such imagery does not reflect the real implications of the annual grant letter to the Higher Education Funding Council for England (HEFCE) that was signed by Peter Mandelson just before Christmas.

After a decade during which grants to universities have gone up by a quarter again in real terms, we have had to ask HEFCE to make savings for 2010-11. The fiscal stimulus over the last over the last 18 months was necessary to keep companies in business and people in work. But both the taxpayer and the public sector must contribute to paying down our national debt. Universities are not being singled out.

No one has proposed a serious alternative to the efficiencies we are now trying to make. I have not yet seen David Willetts’ article, printed elsewhere in this edition, but I very much doubt that it’s an encomium for tax and spend.

Indeed, next year, the 130 or so higher education institutions in England will open their doors to the highest number of students in history – over 2 million of them from this country alone. That will cost the taxpayer well over £7 billion – not counting the grants for science and research that universities get from the Research Councils, which will reach all-time record levels, nor the cost of student grants and loans.

It follows that, if I were a vice chancellor, I would see managing my budget for 2010-11 as my most immediate challenge. But the issue is not just where universities are next year, but where they are in five or ten years’ time.

So while 2010 will not bring a revolution in the way universities are funded, it should be a moment when universities think hard about how best to manage the resources they have in the future. Ever since the end of the last war, universities have sought to keep up with the rapidly increasing pace of social, economic and technological change. By and large, they have done so remarkably successfully. But the pace of change isn’t slowing as we move further into the 21^st century.

The great fact of our times isn’t the short-term economic buffeting we’ve all endured, but the longer-term shift of the world’s geopolitical balance. The 21^st century looks like becoming the Asian century. But it may equally well turn out to be the African or South American century.

The relationship between Britain’s place in the world and British higher education’s global standing is symbiotic. Universities are engines of economic development but at the same time they benefit from national economic success – not least in terms of their public funding. They are engines of social progress, but they are also enriched – in all senses of the word – by widening demand for what they have to offer. And, like Britain itself, they need to prepare now to meet the challenges that a changing world is already bringing.

We have become used to saying that our university system is one of the best in the world, whether in terms of our standing in international research rankings or the amount of contact time students here receive, or our attractiveness to students from overseas or simply how determinedly our rivals abroad are trying to emulate us.

So what should universities be doing now to ensure that we will be able to say the same in five, or ten or 50 years’ time? And how should they be adapting themselves now to maintain the strength of the link of mutual interest between themselves and the rest of society for the future?

Money doesn’t necessarily buy an excellent higher education system, but real excellence can’t exist without it, especially in key but very expensive disciplines like medicine, engineering or the natural sciences.

I suspect that it will be a good few years before universities can expect to see any really significant upturn in their income from the public purse. One reaction to that would be simply for them to cut their cloth and to accept cost-cutting and contraction as the price of dependence on the taxpayer. I think some may go down that short-sighted route.

Alternatively, some may choose to gamble on Lord Browne’s independent review of access leading to a large-scale increase in tuition fee income without a corresponding reduction in the volume of those who actually pay the fee. A different and, in my view, much better approach, one that this Government has been seeking to encourage in recent years, is for universities to try to diversify their sources of income. To find ways of relying less on the taxpayer as a hedge against any future tightening of the public purse-strings.

The first and most obvious way of doing that, especially as our economy begins to recover and grow again, would be to look to the private sector for more investment. For most universities, that isn’t anything new. In the latest year for which there are figures, UK higher education earned nearly £3 billion from external engagement. There was a time when that would have meant contract research for large conglomerates – which is most often the preserve of large- research-intensive institutions. But these days, almost all universities have strategies for engaging with their local economies, often in partnership with local councils, Regional Development Agencies or chambers of commerce.

The potential for that sort of engagement is far from being completely fulfilled. I’m thinking here not just of research and knowledge transfer activities, nor even of the other specialist services, like interpretation and translation, that universities often provide. There are also a whole range of sponsorship and bespoke teaching opportunities of which universities can take advantage and which can form part of the basis of a long-term relationship between a university and a business.

The sort of teaching for which the coming years will see more scope for expansion is something radically different from the traditional higher education model. Demand from employers for learning in the workplace at further education level has been proved since 2006 by the Train to Gain programme. There is also growing evidence of similar demand from employers for work-based courses at level 4 and above, a demand that some universities are already exploiting.

But learner demand and the potential for earning that comes with it is not confined to narrowly vocational skills. From last year’s university applications cycle and progress so far this year, it’s clear that there is still a substantial reservoir of unfulfilled demand for higher education from young people. To date, that has been soaked up mainly through conventional full-time study. In future, however, part-time and distance learning will become more important, not only for the young, but also for older learners who missed out on higher education when they left school.

Far-sighted university leaders will not only need to seek new sources of income, but will also have to take a strategic view of their institutional missions. I think it’s clear that not all universities are finding the traditional universal model easy to sustain. Those problems may intensify in the years to come. So I expect to see more specialisation in some institutions. That may affect the range of subjects that some offer, or how they organise their research – I certainly expect to see some institutions collaborating to form larger and more powerful research groups – or indeed how they arrange their teaching. I could certainly envisage some universities choosing to concentrate predominantly on off-campus learning.

Finally, I think we will see changes in how our universities approach international students. For decades, these have been an important source of income for the sector. While I hope to see students from other countries continuing to choose Britain as a place to study, I also see an increasing role for our universities forming partnerships with institutions abroad. We may well see more British universities opening campuses in other countries, as some have already done.

What is certain is that universities will have to adapt, not just to fiscal conditions but to a host of significant changes in world around them. Only time will tell how successfully our universities rise to the challenge.

23 January 2010

David Lammy. Higher Education Minister,