Rt Hon Alistair Darling MP
Chancellor of the Exchequer

Dear Alistair

The role of universities in the recession

In recent weeks, Ministers have asked Universities UK how our Member institutions can help alleviate the effects of the current recession. Universities across the UK are taking action to support local employers, students and individuals – ranging from the University of Newcastle’s ’10 steps to boost the local economy’, to the University of Derby, ploughing VAT savings back into support for local businesses.

However, we feel strongly that universities could do more. They are already major contributors to the UK economy, generating £45 billion in direct and secondary effects. They are major employers, many the largest in their localities, and between them employing 1.2% of the UK’s total workforce. As you know, the value they create goes beyond what can be directly measured, carried in the heads of our graduates, and produced by our many and varied interactions with industry.

The United States has set the pace with a multi-billion dollar investment in higher education as part of a broader fiscal stimulus package. Not only is this the right action in itself, but it presents an irresistible challenge to the UK. As our major competitor, we now face the very real danger of losing our research stars to our better-funded counterparts in the United States, causing lasting damage to the UK.

Yesterday, Universities UK wrote to the Science Minister, Lord Drayson, applauding the Prime Minister’s recently expressed determination not to retrench investment in research as a result of the recession but, as he put it, “to build more vigorously for the future”. We are writing to you to set this in the context of three specific actions we believe the Government could take, which together could position universities to do much more than is currently possible to support the UK economy.

Investment in infrastructure

Many universities have plans to renew their estates and regenerate inner cities. Our members tell us that a modest HEFCE-backed loan or repayable grant scheme could enable them to bring forward planned infrastructure projects. In particular, universities could be supported to make improvements to the environmental sustainability of their estates. This would have the additional benefit of enabling universities to take advantage of negative growth in the construction price index and the current VAT reduction. Lasting benefit could be achieved and jobs could be created and sustained with almost immediate effect in some cases.

Investment in Knowledge Transfer

We commend the Prime Minister’s indication that he believes significant investment in the research base is crucial to our long term competitiveness and the growth path out of recession. However, with others in the sector, we believe that this should be matched by major investment in knowledge transfer. Sir Roy Anderson, Rector of Imperial College has argued for an “increase [in] the quantum of venture funds to capture the university discovery pipeline - perhaps to the tune of £1bn or more.” This is important. The availability of venture capital is a major problem for all start-up businesses at the moment, and those connected with universities are no exception. Some universities, such as the University of Surrey, are managing to sustain such companies out of their own resources this year, but are unlikely to be able to continue to do so next year. The return on such investment could be significant.

Alongside this, Knowledge Transfer Partnerships are well proven as a means of supporting university-business collaboration. The new ‘mini-KTP’ model has proved particularly popular and has enabled collaboration with SMEs, which are typically hard to reach. A small amount of additional funding through this route, especially if it included some rebalancing of funding to offer more financial support to small businesses, could support more partnerships focussed on the problems business face in challenging economic circumstances. We know that there is un-met demand. This is a successful vehicle and we feel that it could usefully be expanded at this time.

Additional Student Numbers

Finally, and perhaps most important of all, universities are being urged to take in individuals made redundant during the recession, to offer them opportunities to re-skill for new jobs, and to use time otherwise likely to be spent in unemployment to prepare for the post-recession economy. We are also sharply aware that many of this year’s graduates will struggle to find work. While universities are doing all they can to help them in a more difficult labour market (as our recent joint publication with the CBI Future Fit demonstrates), we are experiencing considerably increased demand. This is consistent with other periods of recession, when demand for both undergraduate and post-graduate higher education has increased. Given the evidence of UUK’s recent research which found that the return to the Exchequer on the investment in an individual’s higher education is around 11%, we believe the case for keeping people out of unemployment and encouraging them to take up higher education is unassailable. It would also be consistent with the Government’s aspiration to move towards 50% participation, and Lord Leitch’s recommendation that 40% of the working-age population should be qualified to higher levels. Despite a short-term dip in demand, we believe it remains the case that the UK economy is likely to need more, and not fewer graduates in the future.

This being the case, it is especially frustrating that universities which have the capacity to take more students at this time are prevented from doing so. Not only have undergraduate student numbers (which incur the greatest cost to Government) been frozen, universities are also prevented from increasing the numbers of Postgraduate Taught students, which incur only a marginal cost to Government because of budgetary constraints. These factors compound the illogical, ill-timed and counter-productive decision to remove public funding for Equivalent and Lower Level Qualifications, closing off the possibility of returning to higher education precisely when that avenue has become most important.

While we have raised these issues on a number of occasions with officials and Ministers in the Department for Innovation, Universities and Skills, we have been told that there is no possibility of movement because budgets have to be balanced. We understand this, but we believe in the wider public interest, it is time to think again. Without a rethink thousands of students will fail to get places this year. Many institutions will not enter clearing, and the impact on students from lower socio-economic groups will be most pronounced. Indeed the threat of fines which may go into several millions for institutions who accidentally over-recruit, means that most institutions will aim low, possibly even under-recruiting, in order to avoid crippling financial penalties.

We appreciate that demands on public finances are greater than can currently be accommodated.

We urge you, however, to invest where most immediate benefit might be gained.

Diana Warwick
Chief Executive, Universities UK

cc. Rt Hon John Denham MP
      Rt Hon David Lammy MP
      Nick Pearce, Head of Strategy, 10 Downing Street