Thank you, John, for your introduction. And thank you for the invitation to address the conference today.

These are extraordinarily challenging times and times of great uncertainty. The political changes that have taken place over the last few weeks frame the comments I want to make today. Higher education could prove a thorny subject for the coalition and so I will try to highlight what I think are some of the key issues that they must address.

We know that our new government has placed control of public finances at the top of its agenda. With the ink barely dry on the Budget, we now have a slightly clearer view of how the government plans to tackle the deficit. Public services face a long and difficult road ahead. So, as well as looking at the new political environment, I will focus on the financial situation that we face in the wake of the Budget.

We must continue to make the case for investment in higher education. But we must also acknowledge that we are operating in a changing environment. We cherish our autonomy but, with that, comes responsibility. We must continue reshaping ourselves and our structures in response to the demands we face.

New political environment
To begin with the broader picture, so far we have four key texts that indicate where higher education stands in the government’s thinking. The first is the coalition agreement itself which set out how the government will approach its planned five year term. To add to that we have had a keynote speech from Vince Cable, the Secretary of State at the Department for Business, Innovation and Skills. And we have had two speeches from David Willetts, his Higher Education Minister. Between them these speeches reveal the personal priorities of the new ministerial team.

Of course, now, we have the Budget too and I will return to that in a moment.

There is no doubt that higher education policy could be a make or break issue for the government. The coalition agreement shows that.

It is hardly surprising that tensions potentially exist. The Liberal Democrats have been consistent opponents of tuition fees. The Conservatives are converts to fees and they went into the election committed to waiting on the outcome of the Browne Review before deciding on the future of university funding.

Lord Browne was given a broad remit to examine the future of HE funding and student finance. Indeed, we know that David Willetts, in opposition, argued for the scope of the review to be as wide as possible. Lord Browne is likely to report in the autumn and Universities UK has made the case that his recommendations need to be taken together and implemented in full.

How the coalition deals with the recommendations of the Browne Review will be a critical test of its cohesion and its credibility. And I want to stress an important point here. The coalition agreement gives us some important indicators of guiding principles for the government.

The agreement acknowledges that ‘universities are essential for building a strong and innovative economy’ and they pledge to take action to create more higher education places. They state a desire to attract a higher proportion of students from disadvantaged backgrounds and to review support for part-time students.

I believe that the thread linking each of these goals is social mobility. A recognition – absolutely correct in my opinion – that universities are a vital engine of social change. That, by equipping us to deal with the demands of tomorrow’s economy, universities have the power to transform society.  To transform the lives of individuals.

For the government to acknowledge this so explicitly is important.

It is important because it echoes so clearly our own case for the value of higher education.

Universities UK has repeatedly stressed the economic impact of higher education. If we are not to fall behind competitor nations – many of whom are investing heavily in universities – we cannot afford to row back on the expansion of higher education. And if we are to meet that goal we also have to break down the barriers to participation that still exist.

That link: between the economic value of higher education and the transformative power of the university experience for an individual, is central. It is one of the reasons why I was so keen for Universities UK to play an active part in what became Universities Week.

The week of activities that has just ended, showcasing the role of universities around the country is a first step. It is a first step in a wider campaign to show the enormous value of higher education to society at large. It’s not just about the scientific discoveries that have been made in our universities. Although they are alone are an awe inspiring story. It is also about the way that the lives of individual people have been changed. How human potential has been unlocked by the opportunity to study, to engage with others, to be challenged. That, to me, captures how universities directly drive social mobility. Higher education has the power to break down barriers.

So it is of great significance that the coalition agreement links those two priorities so plainly.

At the formation of the coalition it became clear that the agreement was a critical document. In effect a kind of post hoc manifesto that will be turned to repeatedly. It will be used to resolve internal disputes within the government. And it will be used by supporters and opponents alike to judge the government’s performance. Its promises against its delivery.

Beyond the coalition agreement, both Vince Cable and David Willetts have given their first indications of their policy priorities.

The new Secretary of State – Vince Cable - is a pivotal figure in the government. Some have said he cuts a rather curmudgeonly figure, frustrated by the turn of events that have led him to the leadership of one of the most important departments of government. I cannot comment on that. But I can say, from my dealings with him, that he is determined and focused on the job.

It is clear from his keynote speech earlier this month that his main preoccupations will be with banks, industrial policy and with cutting costs.

His industrial policy may well be less interventionist than Peter Mandelson’s. That could well have a direct impact on universities which are, themselves, significant players in regional economic policy and major contributors to their local economies.

Vince Cable is not likely to abandon the field of HE policy entirely – in a coalition setting all policies will have to be negotiated and agreed internally. But his influence may well be less direct.

I suspect his broad outlook on higher education is best captured in a phrase he used in his 3rd June speech: that philistinism is bad economics.

So while Dr Cable will concern himself principally with economic policy, David Willetts will take the lead in developing the government’s approach to higher education. David is most definitely not a philistine. He knows the sector well and has clear views on the way ahead. His speech at Birmingham University in May reiterated many of the themes he has stressed in the past. He understands the significance of our universities' world-leading reputation. He treasures quality. And he challenges the sector to show clearly the value it offers to students.

In his more recent speech at Oxford Brookes, David Willetts again made clear that he has little time for arguments about ‘Mickey Mouse degrees’. That is to be welcomed. But he also challenges the sector to improve the information we provide to students and potential students. Taken together that means we have to be absolutely clear about the value our courses offer. It is a challenge we should embrace as we continue the excellent work already being done to improve information, advice and guidance.

In the run-up to the election, David also made the case for expanding student numbers to meet demand. In his Oxford Brookes speech he emphasised the trend that has taken root in this country since the war: of increasing numbers of young people pursuing post-sixteen education. Continued expansion of higher education has followed and as David has pointed out, there are no precedents for this trend to be reversed. So, again, the link comes back to broadening opportunities; to widening participation; to expanding choice. All of that must be welcome.

So the broad outlines of the policy agenda are set. The government has committed itself to maintaining a high quality higher education system; to increasing participation; and to promoting diversity of provision. But none of that sounds like a free lunch! Given that, the sector is right to ask whether the government’s pocket book matches up to its shopping list.

How we got here
Before I turn to how we might meet the government’s aspirations, it is worth taking a moment to remember how we got to where we are now: to appreciate the scale of the commitment, political and financial, that the previous government made to higher education.

In the last decade we have secured widespread political recognition of the importance of higher education to the UK. This has been accompanied by unprecedented political backing.

The introduction of fees required the investment of considerable political capital by the previous government. But it wasn’t just through the introduction of fees that the government demonstrated its commitment to what we do. Steady growth in investment for teaching, and even more dramatic increases in funding for research, which broadly doubled – have also to be acknowledged.

This was achieved in part because we produced the evidence to convince Government that higher education was a worthwhile investment, and not a cost.

And I believe we have shown the direct link between that investment of public funds and improvements in the student experience. Earlier this year, Universities UK published our report “Making it Count”. The report set out how universities had used the additional funds that came into the sector after the introduction of variable fees.

The underlying financial health of the sector improved, giving universities a stable base from which to invest. Between 2004/5 and 2007/8 there was a 25% increase in spending in academic departments; a 29% increase in spending on academic services; and a 35% increase in expenditure on premises. The median staff to student ratio fell from 17.6 to 16.8. The improvement in the physical infrastructure of universities delivered IT upgrades, expanded library services and new social learning spaces. And, importantly, expenditure on bursaries and outreach activities rose over this period too.

What happens next?
Despite the years of additional investment, it is worth remembering that we still spend less on higher education than the OECD average. And government spending on higher education is lower, as a proportion of GDP, than it is in the United States.

The risks are apparent: that a failure to invest adequately in higher education might see the UK slipping behind in the race to prosper in the new economy. The warning signs are there: the new Office of Budget Responsibility has pointed out that emerging economies in Asia are already achieving pre-crisis rates of economic growth. They will not hesitate to invest.

Education Secretary Michael Gove highlighted the dangers in a speech he gave only last week. He pointed out that China and India are already turning out more engineers and more university graduates than the whole of Europe and America combined. He asserted that the success of other nations in harnessing their intellectual capital is a function of their determination to develop world-beating education systems.

Yet, it is clear, that the public funding climate in the UK has changed dramatically. Universities UK is not blind to these new realities. We have acknowledged that higher education will have to shoulder its share of the cuts. But we also need to be alive to the scale of those cuts. And we have to make absolutely clear to government the impact of deep and sustained cuts to university funding. Most importantly of all we must continue to press the government to give universities the tools to cope with the new funding environment.

The previous government announced cuts (in England) of £449m to the planned budget for 2010-11, with a further £600m to be found from the Higher Education and science budgets by 2013. The new government added £200 million of further cuts last month.

Yesterday, in the Budget, the government said it will stick to its aim of eliminating the current structural deficit by 2015. With the health budget ring-fenced, that means other departments face funding cuts of up to 25%.  That’s not idle speculation. It is spelt out in the Budget itself. In October, when the Comprehensive Spending Review is published, we will begin to get a clearer view of what this means for higher education. But if we assume that universities fare equally badly (or well) relative to all other areas, that implies a reduction of around £3.5 billion from the £14 billion currently spent on higher education and science.

Our greatest concern is that the government will not have the political will to deliver the reforms that would enable the sector to cope with cuts on that scale.

Professor Steve Smith, President of Universities UK, has spoken of higher education facing a ‘valley of death’ in terms of funding.

The fear is that the government will cut direct, public funding for higher education but will then fail to implement the recommendations of the Browne Review in full. Even more worrying is the danger that the Browne review raises the prospect of ‘solving’ the problem of university funding, prompting deeper cuts than would be undertaken otherwise. If the coalition then discovered that Lord Browne’s recommendations could not be implemented because of internal dissent, that would be a disaster.

I will continue to make the argument about the risks from under-investment clearly and forcefully. The government must understand the consequences of its actions.

Our part in the bargain
I mentioned at the beginning of my speech that the sector must respond to the new environment too. Universities have transformed themselves dramatically in recent years. The pressure to change will continue to grow and we have to prove ourselves capable of adapting further.

It will help, of course, if government policies create the right environment.  We have made the point that yesterday’s VAT rise will add to the cost base of universities and make it harder to share back-office services, for example.

But the government will be looking to the sector to respond proactively to the need for efficiency savings. And that presents opportunities for those agile enough to adapt and I am pleased that Universities UK is already leading on work in this area. There are numerous examples of successful collaboration within the sector. I am sure that more initiatives will follow in the future.

We have major issues to address on pay and pensions. Those are difficult issues but they cannot be ducked.

Our submission to the Browne Review has called for a rolling programme of reforms within the sector. There is an urgent need to look at the burden placed on the higher education budget by the costs of student support. We support moves to strengthen the regulatory and accountability framework and to improve information, advice and guidance.

Within all of this, I can see one guiding principle.  The quality of the student experience remains at the centre of our approach. And because of that I know that the sector itself will respond to the evolving needs of students.

Universities UK will continue to speak up for higher education and to hold the government to account. We will do that in part because we share the government’s aspiration for a diverse, transparent system that has the capacity to deliver on its full potential. But most of all we will make the case for higher education because we have built a world-leading, high quality university system and students, staff and wider society deserve to see that maintained in the future.

ENDS