This is a difficult speech to give because we are gathering here at a time when we all know that we are on the cusp of massive change in the UK university system; we don’t know exactly what is coming, but now, more than for several generations, the past may not be a good predictor of the future. All of this makes it difficult to get the tone of this speech right.

Let me start by welcoming the Minister here today. Obviously, we’re talking to you primarily as Minster for HE in England.  But clearly many of the issues directly affect the devolved administrations.

I would like to make three comments directly to you.

First, please understand that all the members of UUK realise the financial context. We do not deny the severity of the difficulties facing the government in dealing with the public finances. We know reductions in public financing are on the way.

Second, can I state unequivocally that we appreciate how much time you have spent making sure that you know about the entire sector. We applaud that, and I know that you see universities and students as absolutely central to the future of our country. Equally, I know that you do not take a purely instrumental view of university education, well understand the wider virtues of a university education, and are personally committed to increasing, deepening and widening participation.  I also note with pleasure the government’s clear commitment to social mobility, and to the Deputy Prime Minister’s statements about the role of higher education in furthering that shared aim.

Third, I am particularly aware that any Minister appearing before any audience will hear calls for protecting certain areas of public spending. Therefore the obvious reaction to anything that the President of a body such as UUK might say is ‘well they would say that wouldn’t they’. But, my argument is not about what is best for the UK’s universities, but about what is best for the future of the UK.

Before turning to the focus of today’s address, I want to say a few words about two other issues. First, Damien Green’s speech on Monday night. UUK is pleased to hear his unequivocal commitment that the great international success story that is the UK university system must not be damaged by any changes to international student visa regulations. But, the details really do matter here. Thus, while  understanding the problems with individuals entering the UK to study at bogus colleges, we must stress that many UK universities rely significantly on feeder programmes taught in affiliated colleges for their recruitment. The university sector must be protected in any change to the visa system, yet, if our experience to date with the new working visa arrangements is anything to go by, there may well be significant differences between what is said and what is implemented. Specifically, if reducing the number of international students is a policy objective, can I ask which sector of the UK economy is going to expand to replace the  lost income to UK plc. Universities, really could face a triple whammy of Spending Review (SR)  reductions, a funding valley of death and restrictions on international recruitment. 

Secondly, can I simply state, so that there is no doubt at all, that higher education is transformative, both for individuals as well as for economies. I am going to say much more about the economic dimension shortly, but for individuals like me, going to universities literally changed not only my life chances, but the person I became. That goes regardless of which institution is attended, and whatever the mode of study. These are lives and life chances we are dealing with here.

But I want to focus on two sets of issues: firstly, the future of the UK economy and, secondly, the potential pitfalls of the decisions that are shortly to be made by the government over the SR and Lord Browne’s report.

Let me start with the future of the UK economy. Unlike the second part of my address, my focus here is not on universities in themselves. My logic is to ask what choices do we have over the kind of economy the UK will be in the future, and then ask what this implies for the research base of the UK (in which universities obviously have a major role). Most of the issues to do with the economy involve research, but clearly higher level skills are part of the story. And of course similar arguments can be made about the role of universities in social mobility, social justice and social inclusion, but in the case of the research base I think there is literally no substitute for the role that universities have to play if we are to have a successful economy in the future. This then is a narrative that does not start with the universities and what might be good for them, but instead starts with the economy, and specifically with the best strategy to ensure future economic growth.

Put bluntly, my worry is that we may be about to make decisions that fundamentally undermine our future capacity to be a globally competitive knowledge economy. I don’t have children, but if I did then I would be worried about what kind of jobs they might have in the future if we make short-term spending decisions on the research base that reduce the UK to a second rate knowledge economy. The decisions the government is going to make in the SR about the research and skills base are unlike those it will make in other sectors. They will fundamentally determine the levels of growth this county might enjoy, the  type of economy we become¸ and thus the kinds of jobs our children might have. Other sectors can make the case but I honestly believe that no sector can argue that it plays as determining a role in the nature of the future economy as the research base.

Recent analysis, in June 2010,  by NESTA about the future of the UK economy makes the point with crystal clarity. They note that innovation accounted for two thirds of productivity growth between 2001 and 2007.  Looking at four scenarios for future economic growth (business-as-usual; manufacturing renaissance; high tech flourishing; innovation across the economy), they conclude that the best chances for future economic growth come from the last two scenarios, and in each case they highlight ‘the important role that …the...knowledge economy… [has] in driving growth over the next decade’.

Of course we have been here before: the previous government commissioned reports that looked at the skills needed for such an economy (the Leitch Report) and at government’s science and innovation policies (the Sainsbury Report). These painted a detailed, evidence-based and compelling account of what kind of skills and research bases the UK needed to compete in the future. The central conclusion of Leitch (that the proportion of jobs requiring skills of level 4 or above will increase from 29% to 40% by 2020) has recently been reinforced by reports by both the CBI and the UKCES Skills Audit; both argue for a substantial increase in the participation rate in HE in order for the UK to remain competitive as a knowledge economy.

In particular I would recommend anyone to re-read Lord Sainsbury’s Report, Race to the Top, which is the most intellectually convincing report on the topic that I have ever read. It is a report that is referred to by research and government leaders in our competitor knowledge-economies. It is the alpha and omega of analysis on how science and research policy relate to economic growth, presenting a joined up analysis, a clear vision,  and providing a long-term strategy for maximising innovation and economic growth. Its core claim is that the UK cannot win a race to the bottom on low wage rates for low added-value jobs, and thus has to win the race to the top by creating high value-added jobs. To do this requires investing in the innovation eco-system. It concludes ‘We can be one of the winners in “the race to the top”, but only if we run fast.’

Given that conclusion, the UKTI’s July 2010 report on inward investment, with a preface by William Hague and Vince Cable, makes interesting reading, arguing that currently the UK has the strongest research base in Europe. It continued: ‘For international companies, the benefits of locating in the UK to access the world class R&D base remain clear-  for example, overseas entities own 37% of patents in the UK, compared with just 11.2% in the USA and just 4.4% in Japan.’ But it warned that ’the international competitive environment to win high value R&D investment is intense’ with 80% of the £400 bn annually invested by the 1000 largest companies concentrated in just 5 countries (the UK, Germany, France, Japan and the USA).

So, how are these competitors investing in their R&D base. Here the UK’s compares poorly. Using the latest OECD figures, the percentages of GDP spent on R&D are:

• Sweden 3.73%
• Finland 3.45%
• Japan 3.39%
• Korea 3.23%
• Switzerland 2.90%
• USA 2.62%
• Germany 2.53%
• France 2.11%
• Canada 1.94%
• UK 1.78%

But what of future investment levels: As President Sarkozy put it on 26 July: ‘In the current economic downturn, many countries have chosen to curtail their research budgets. As you know we chose not to cut ours. Instead we increased it. With western economies going through a difficult time…governments are obviously tempted to postpone needed investments in science...we in France took the opposite task, considering that higher education and research are the solution to the recession. The economic downturn should not prompt us to postpone investment in science, but rather to bring it forward...new knowledge will be…the best weapon in fighting the recession’.

The most recent data presents a depressing picture in terms of the comparison between UK investment decisions over science and research and those of our major competitors. The headlines are:

• USA: Doubling science spend to 2016; 6% spend in 2011; $21bn increase in science and research over next 2 years
• Canada: $6bn increase in R&D,
• Germany: Additional 18bn Euros for science and R&D from 2010-2015
• France: additional 8bn Euro for research, plus an additional 11bn Euro for HE
• China: additional $860m research support fund
• Australia: additional $580m into research in universities on top of an increase of 25% in science and innovation spend between 2008/9 and 2009/10

There are countries reducing their research funding: notably Spain, Czech Republic and Ecuador.

In the decisions to be made in the CSR, there is one fundamental difference between those on the funding of university teaching and student support and those on the research base: there is no obvious substitute for lost governmental funding of the research base. All the international and UK evidence points to one inescapable conclusion: in R&D, it is governmental spending that leverages out private sector spending and is a magnet for private investment and, for inward investment. Reducing governmental R&D spending thus starts a vicious circle, leading not to replacement private R&D spending but to reductions in private spend. This leads to a downward spiral as charities and businesses react by moving their investment to our competitors.

Business leaders have made their position clear; in letters to the Times and to the Daily Telegraph in June 2010, a group of CEOs wrote that: ‘We need a credible plan for restoring fiscal balance but urge the government to be cautious over those elements of public spending that are vital to the future growth and prosperity of our economy – science, innovation and knowledge’. These sentiments have been echoed by Richard Lambert this week.

It is also critically important that in forthcoming decisions on the research base we do not cause irreparable damage taking us out of being a serious scientific nation. The policies that will do that also stop us being able to exploit the 90% of world research that is undertaken in our competitors: a challenge you issued us earlier in the summer. In this sense, whatever is done on the research base is unlike other choices facing the government, where decisions made this year can be reversed when the public finances improve. Whereas reducing, say, the number of plumbers trained in Grimsby for a year can be reversed the next year, this is not the same in big ticket science and research commitments.

We are either in CERN or not, and there is not the easy option of reducing our subscriptions by a few percent. Similarly, pulling out of Research Council institutes or large scale facilities could also dismantle the scientific infrastructure surrounding them. In this centrally important sense, it is the quality of the UK research base at the very top end of international competition that defines the quality of the UK R&D brand. 

Our competitor knowledge economies are without exception investing heavily in their research and science base, and I know personally they cannot understand our logic of reducing investment in what they see as the number one route towards future economic growth. Indeed as one very senior individual in Singapore put it to me a month ago: at a time of economic problems the very last thing you do is reduce research and science investment; in fact you do precisely the opposite, otherwise you get into a growth death spiral. In that light I was heartened to hear George Osborne’s recent insistence that cuts must not damage economic growth. I agree with that: indeed to use an analogy, cutting back on the UK’s R&D base now would the equivalent of the government cutting back on the production of Spitfires in the early summer of 1940.

On the government’s major decisions on the Browne report and the SR, I want to speak specifically about the major potential pitfalls that worry us here at UUK.  Before I do so let me repeat, for the record, UUK’s view that whatever the outcome of Lord Browne’s report, access to higher education has to be free at the point of delivery; access to students from low socio-economic backgrounds has to be enhanced by a system of institutional bursaries and government grants; there has to be a system of student financing that deals with the distinct problems of part-time  students; and the outcome has to preserve the essential link between student and the institution they attend.

However, assuming those concerns are dealt with, the following 8 pitfalls remain.

1. The first is an argument I’ve trailed extensively over the last few months. My biggest single worry is that the SR will be carried out confident in the knowledge that Lord Browne will introduce replacement funding. There are two points here: on the one hand, this could lead to greater reductions being made in university funding than might otherwise be the case. Browne’s figure of steady-state net increased graduate contributions could be used to increase the reductions that universities might face; but what if the process of getting Parliamentary assent to the proposals altered the amount of funding to come to universities? 
   
   On the other hand, and more significantly, there is the possibility of Lord Browne’s recommendations being a technical solution that is un-acceptable to Parliament. I do not need to remind you of the parliamentary arithmetic; former Prime Minister Blair only got his HE bill through by 5 votes, when he had a 168 majority. And he did not have 55 of the 57 Lib Dem MPs having signed the NUS pledge to vote against any fee increase. This could potentially lead to two problems: either that the Browne proposals get delayed, and thus the ‘Valley of Death’ gets wider or that alternative or partial recommendations, such as the widely discussed notions of a graduate tax, get put to Parliament, thus deepening the Valley.
2. The second worry concerns timing, namely getting the Browne and SR changes into synchronisation. Thus it is not just how much the SR reduces the public funding of HE, but also how Treasury sculpts these changes and how they relate to any increase in graduate contributions emerging out of Browne. The damage is done if cuts are imposed before the compensating income is delivered. The key point is that the Treasury deadline for reductions in public spending is 2014/15; this requires that replacement funding has to be delivered in its entirety by then. This shows the fragility of the relationship between the SR and Browne. There are also significant Barnett consequentials of the SR and Browne outcomes, which could have significant effects on Scotland and Wales. Though the block grant is un-hypothecated, some combinations of SR reductions and increasing private contributions could lead to a real double whammy for the devolved administrations.
3. Third, focussing on teaching funding, there is the danger of ignoring the fact that even if Browne replaces lost HEFCE funding that worked for the university sector as a whole, there could be significant differences at institutional level. Some institutions could be destabilised if they were subjected to a reduction in public funds, and yet were unable to make that up with replacement funding in the post-Browne fees environment: and this could well be institutions playing an essential local and regional role in educating students, in widening participation, and in supporting regional businesses  and the regional economy.
4. Fourth, since it looks likely that we are facing considerable change, it is imperative that the details of the changes are thought through carefully. Thus, however tempting it might be to expand the role of either HE in FE, or private providers, please listen to UUK’s concerns about quality, about the student experience, and about the international ramifications of these changes. Equally, please do not under-estimate the potentially de-stabilising effects of introducing too suddenly fundamental challenges to how institutions price their courses. In all of this the role of HEFCE becomes literally pivotal.
5. Turning to research funding, can I stress the importance of keeping the balance between the two sides of dual support: currently the research budget stands at about £6bn for the UK, split into £2bn of QR and £4bn of the science budget, the latter comprising roughly £2bn of spend on large scale international subscriptions, large scale facilities and Research Council institutes, and roughly £2bn going to universities to fund postgraduates and responsive mode research grants. In response to Adrian Smith’s request for comments on the balance of these sums, the consensus was that the balance was about right. Altering that balance, say by reducing QR more than Research Council and science spend, will unsettle this balance and also adversely affect the Humanities and Social Sciences because of their much greater reliance on QR and on Research Council income. Therefore, any headline reduction in the research base has to be interpreted in the light of the inherent problems in reducing international subscriptions and large scale facilities; any headline reduction is thus likely to fall disproportionately on institutions.
6. Sixth, whilst it is tempting to think that significant savings in QR can be made from removing funding from those units that are either small, or are found in institutions with little research, the reality is that significant cuts in QR will have to affect all institutions. About 85% of both QR and Research Council funding to institutions goes to 40 institutions. So, there is no easy way of reducing research funding much above 10% in real terms over four years without cutting into the work of the research intensives. Nor of course can we accept the argument that research funding should simply be removed from a group of institutions with research strength in specific subjects. And if I may refer to yesterday’s speech by Vince Cable, can I just make two comments: first, the Secretary of State said that we should concentrate research resource on 3* and 4* work identified in the RAE, of which there was 54%. Well, 90% of QR goes to that work. I think this represents concentration. Secondly it really doesn’t help when the Secretary of State talks about mediocrity in UK research. In the last RAE 87% was identified as work of international standing. It is a matter of regret to me that the Secretary of State made these comments for two reasons; first that he made these fundamental errors, secondly that this is potentially damaging for the reputation of UK research.
7. Penultimately, given all the above, can I stress how important it is that HEFCE has the ability to act to smooth these significant transitions. If it’s funding faces major reductions, there will come a point where it will not have the resources to do things that the government wants it to do. UUK stands firmly behind HEFCE as an absolutely necessary body to oil the wheels and smooth transitions as institutions face major changes. In doing so, HEFCE’s primary interest must be to protect students, but it has to have the resources to do so. This is exacerbated if government also wants HEFCE to be the purchaser of science and medicine, promote widening participation and student retention, push carbon reduction plans, oversee business engagement, fund sector-wide agencies etc etc. Although a matter for the devolved administrations, the same logic applies to the roles of the SFC and HEFCW.
8. Finally, in addition to the effects of forthcoming decisions on students, staff and institutions in the UK, we must be aware of the international repercussions. It would be playing into the hands of our competitors if the headlines following the SR were ‘UK disinvests in HE’. That damages every institution in the country as well as the very part of our economy that the Prime Minister was at pains to promote in New York and Delhi recently as what the UK brought to the table in the 21st Century. I do not want the announcements on 20 October to be accompanied by the sound of hands rubbing with glee in the UK’s HE competitors.

None of what I have said should be taken for a second as implying that there is no scope for reform within the system as it exists. We have a responsibility to shape our own future. There has been important work on efficiencies undertaken already. But we have to go further. We are about to launch a new programme under the leadership of Professor Ian Diamond looking at options for efficiencies across the university sector.

The allocation of funding through the University modernisation fund shows that the sector is willing to engage with this issue. Fifty seven institutions secured funding to develop ‘invest to save’ measures. UUK will do all it can to lead this agenda and identify where there are savings to be made. Similarly, we will work to examine and promote alternative ways of increasing participation, including different relationships between FE and HE and increasing links with private providers. We accept that we must be flexible and not become obstacles to change.

So, in conclusion, Minister, UUK looks to the government to get its spending decisions right and to work in a joined up way to unlock our potential to remain one of the leading knowledge economies in the world. My fundamental question is if we do not try to win the race to the top, what future lies in store for the UK?

But the logic of Race to the Top and Leitch may not be the view of this government, though the report by Sir James Dyson and recent CBI statements on the topic indicate clear support for this logic.  Therefore can I end with a simple intellectual challenge to you, Minister: is it not time for your government to re-visit Race to the Top and Leitch and tell us if you accept their logic. If you do not, can you tell us how we will achieve future economic prosperity, and what the link is between the economy and research and higher level skills base? It is time that Race to the Top was either re-stated or replaced. We surely need that long-term vision, strategy and commitment to enhancing the science and innovation base and promoting future economic growth.

Standing as we do on the cusp of significant change, it is absolutely imperative for the future of this country that the UK remains a first-rank knowledge economy, not for the sake of universities, not even for the sake of current and future staff and students; no, the UK has to remain a leading knowledge economy because there literally is no other choice if we want to bequeath economic prosperity to our children. This week’s OECD data shows that we are falling comparatively both in terms of the amount spent on HE compared to the OECD average (1.3% compared to 1.5%, with the US increasing its percentage spent from 2.9% to 3.1%) and in terms of the percentage of young people graduating. As he put it, in what I have to say seem very prophetc words to me Andreas Schleicher said this week about the UK: "The current flattening out in higher education participation means that in the long term (economic)  growth potential is more limited." Next week we will see the publication of the new THE World rankings, which are expected to show a decline in the UK’s comparative performance, with our competitors quickly catching up. I think the future is looking us in the face, and we could be about to seal our fate as a first rank knowledge economy.

Minister, if this logic is wrong, self-serving or outdated, let us have the debate; but if it is correct, please do not make decisions that prevent us from taking part in the race to the top, let alone win it. And, if we cannot take part in that race, what exactly is the future for the UK economy, and thus for our society? Please do not do long term and irreversible damage for the sake of short term financial considerations. Our successors will never forgive us if let this happen, and nor should they.