A capital injection would protect the UK’s risky HE funding model

The UK’s recent budget was pitched as helping to stabilise the economy and move it to growth. The leader of the opposition, Sir Keir Starmer, says his priority as prime minister would be to do the same. But how will this happen? 

The innovation that drives a knowledge economy and addresses long-term societal challenges does not grow on trees; in a high-tech and competitive global environment, it often begins in universities. Yet no one should assume the outputs of universities will continue regardless of inputs. The challenge for the UK is that the business model for higher education is not adequate to support the country’s long-term ambitions in research and innovation given financial flatlining and brutal headwinds.

UK universities are pretty efficient at delivering transformative ideas and life-changing educational opportunities. However, the costs of educating UK students and undertaking research are not met by the public funds allocated for these purposes. Hence, universities sell world-leading education to international students and channel the surplus back into research, innovation and teaching. And we’re good at it. Higher education is one of the country’s most important export industries, with an economic value more than three times that of gaming and greater than that of the automotive industry.

The much-vaunted reputation of UK universities is, in that sense, sustained by the investment in education of families from Bangalore to Beijing. And aside from the very tangible benefits to the academic mission that overseas students bring, it’s a business model with many positive attributes. It leverages public funding by bringing in foreign income and driving innovation and excellence that keep us internationally competitive for top students. UK research is cross-subsidised this way to the tune of £1 in every £4 spent – and that subsidy is growing.

But the model is risky. Compared with both US universities, which have a base of self-funding from endowments, and those from Asia and Europe, which thrive on public funding, ours are more susceptible to the vagaries of international relations, national politics and bureaucratic regulation.

UK universities can help mitigate the risk by growing other earned or endowment income to manage marginal or strategic costs. And, ideally, the government would both set domestic student fees that meet the cost of a degree course and fund the full cost of research; without an increase in public funding across the board, there would likely have to be an unacceptable compromise between the number of places for new students and the amount of research that could be undertaken – both vital elements of the innovation-driven economy.

But these are long-term fixes and, for now at least, there is no indication of politicians moving in this direction. Indeed, the government has focused on growing regulation rather than funding, forgetting that – as the saying goes – you don’t fatten a pig by weighing it.

One possible alternative would be to provide capital investment in research, innovation and teaching infrastructure to ensure we have world-class facilities. That is part of what will continue to attract the world’s brightest students and most capable researchers and entrepreneurs to our shores, helping to future-proof our current funding model.

Creating state-of-the-art facilities for research with impact also has the knock-on benefits of creating local jobs, renewing local areas and protecting supply chains. This is every bit as important as attracting a new car factory to a region and, arguably, has far greater long-term benefit. You might even argue that it is smart levelling up.

Cutting-edge laboratories and classrooms optimised for modern teaching would be an immediate investment, at a scale that can be controlled from year to year, with a long-term impact. It could be targeted at projects that clearly address the government’s vision for the country, and it would send an important signal that the UK is serious about the value of knowledge.

The UK needs to build a more promising future. Ensuring the drivers of our knowledge economy have the facilities to do that would be a powerful place to start.

Ian Walmsley is provost of Imperial College London.