vision - Universities UK · Part 2: Argument and Evidence: higher education in the UK 2.1 Introduction 2.2 Success of UK universities 2.2.1 Contributing to economic growth 2.2.2 An

Achieving ourvisionUniversities UK 2004 Spending Review Submissionfor England and Northern Ireland

Achieving ourvisionUniversities UK 2004 Spending Review Submissionfor England and Northern Ireland

Universities UK Achieving our vision 2004 spending review submission for England and Northern Ireland2

Foreword by Professor Ivor Crewe

Investment need summary for England and Northern Ireland over Spending Review period

Part 1: Spending Review submission for England and Northern Ireland

1.1 Introduction

1.2 Maintaining core funding for teaching

1.3 Maintaining research capacity

1.4 Additional investment needs

1.4.1 Additional student numbers1.4.2 Human resources1.4.3 Physical resources1.4.4 Knowledge transfer and community links

1.5 Conclusion

Part 2: Argument and Evidence: higher education in the UK

2.1 Introduction

2.2 Success of UK universities

2.2.1 Contributing to economic growth2.2.2 An efficient and well managed sector2.2.3 High graduation rates and employability2.2.4 Strong research performance2.2.5 Contributing to the health service2.2.6 Contributing to business and the regions2.2.7 Wider benefits2.2.8 Attracting international students

2.3 UK cost pressures

2.4 UK-wide investment needs

2.4.1 Human resources2.4.2 Physical resources

Table of contents

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Universities UK Achieving our vision 2004 spending review submission for England and Northern Ireland 3

Universities UK’s submission to the SpendingReview 2004 in England and Northern Irelandsets out the level of public investment that webelieve is needed for the sector to achieve agreednational objectives. Our vision for the future is ofa well-funded sector that can continue tomaintain its position of international excellenceboth in teaching and research, expand and widenaccess and contribute to a knowledge-basedeconomy at regional, national and internationallevels.

The achievement of this vision requiressubstantial additional public and privateinvestment, as the Government recognised in lastyear's Higher Education White Paper. Whilepublic funding will always provide the majority offunds for the sector as a whole, private fundingfrom graduates, industry and endowments willmake an increasingly important contribution. Forthis reason, Universities UK welcomes andsupports the Government’s proposal to replacethe current system of up-front fees for full-timeundergraduates with a graduate contributionscheme and the introduction of flexibility in thelevel of fees that higher education institutionsmay charge for full-time undergraduates.

These proposals are fair and equitable and willprovide additional income for universities, which,in the longer term, will work towards solvingsome of the sector’s funding problems. However,we believe that the large sums of money neededfor core teaching costs cannot be met withoutincreased and ongoing public investment. It isvital that additional public resources areallocated at the same time as new private feeincome starts to make an impact.

In our 2002 Spending Review submission, wecalculated the investment need for Englishhigher education to be £8 billion. We warmlywelcomed the additional £3.7 billion for England madeavailable to higher education under the lastSpending Review. This was indeed a significantsum and will go some way towards addressingthe funding needs of the sector we identified. However, whilst the additional investment for research was substantial, there was little or no real terms increase in the core funding for teaching, and those funds that were made available for teaching were tied to specific

initiatives. Additional investment in this area willenable the sector to meet the Government’sobjectives for expansion, and to ensure that moreindividuals who can benefit from highereducation have the opportunity to do so,particularly those from a family background withno participation in higher education. It will enablethe sector to continue to produce high qualitygraduates for the economy and play a centralrole in promoting social justice. The need foradditional core funding for teaching is therefore akey focus of our SR2004 submission.

In our submission, we also indicate the need forfurther substantial investment in research andknowledge transfer. This will ensure that thesector maintains its international standing forresearch excellence, second only to the UnitedStates. Continued investment in links betweenuniversities and business, and the communitiesin which they operate, will allow the sector tobuild upon the substantial work already beingundertaken and to continue to play a central rolein the development of a knowledge-basedeconomy.

Our vision of a successful, well-funded sector ofinternational standing and excellence is of vitalimportance to the future success of the countryas a whole. Additional public investment inhigher education is an investment in the nation’slong-term economic and social prosperity.

Professor Ivor CrewePresident, Universities UK

Foreword


The structure of this Spending Reviewsubmission differs from our 2002 submission.For the first time we have included a submissionfor England and Northern Ireland, rather thanthe UK as a whole. This is presented in Part 1.This submission is, however, supported by a UK-wide statement about the role and contribution ofUK higher education, the cost pressures facingthe whole sector, and the common priorities forinvestment across the UK. This is presented inPart 2. The UK-wide statement in Part 2 will becommon to those SR2004 submissions beingmade by colleagues in Wales and Scotland. ForEngland and Northern Ireland we have identifieda total investment need of £8.8 billion for thisSpending Review period. Below is a summary ofthis investment need. Figure 1 shows whereadditional investment is needed and Figure 2shows what will be achieved as a result.

Maintaining core funding forteaching and learningTransparency Review data for 2001-02 shows anincreasing gap between public funds provided forteaching and learning and the costs toinstitutions of providing them. It istherefore essential to restore the core fundingthat was top-sliced in 2002-03 to increase thewidening participation premium.Total cost £568m (recurrent).

Maintaining research capacity A recent report conducted for Universities UK byEvidence Ltd, Funding Research Diversity,demonstrated that investment in departmentsgraded four or three in the 2001 RAE is importantfor ensuring that the nation’s research baseremains competitive at international levels.Restoring QR funding to the level of the original2001 RAE allocations is vital for our nationalresearch base. Total cost £330m (recurrent).

Additional student numbersTaking account of demographic change andmeeting the Government’s 50% participationtarget will require funding for an additional30,000 full-time equivalent (FTE) students eachyear of the Spending Review period. Total cost£820m (recurrent).

Access premium for new studentsFurther expansion of the sector depends on therecruitment and retention of non-traditionalstudents. Research by JM Consulting showsthe cost to institutions of recruitingand retaining these students is 31 per centhigher than for conventional students. Thispremium is needed in addition to core funding.Total cost £254m (recurrent).

Human resources Pay modernisation will enable more flexiblereward structures to be introduced for all staff,resolving equal pay problems and providingopportunities to improve recruitment andretention rates. New independent research hasshown this could be delivered for a five per centuplift on the sector’s annual pay bill. Total cost£602m (recurrent).

Teaching infrastructureMaking the teaching infrastructure fit for purposeand providing for replacement and renewalrequirements was costed by JM Consulting twoyears ago. Taking account of what was providedin SR2002, there remains a huge remedialinvestment need. We are therefore asking for thesecond tranche of the capital investment wedeferred from our SR2002 submission. Total costin SR2004 £2.23b (capital funding) plus £848mtotal recurrent funding.

Investment need summaryover Spending Reviewperiod


Research infrastructureAdditional investment necessary to sustainworld-class research and strengthen knowledgetransfer capability was costed by JM Consultingtwo years ago. Taking account of what wasprovided in SR2002, there remains a substantialremedial investment need. We are thereforeasking for the second tranche of the capitalinvestment we deferred from our SR2002submission. Total cost in SR2004 £1.52b (capitalfunding) plus £578m total recurrent funding.

Knowledge transfer andcommunity linksContinued investment is needed for capacitybuilding and supporting activities, asrecommended by the Lambert Review, with apublic benefit that will never be wholly self-sustaining. Total cost £140m (recurrent).

See Figure 1 over page.


England and Northern Ireland additional higher education funding needs compared with 2004-05, £M

In 2006-07 and in 2007-08

2004-05 prices Recurrent Capital Total

Maintaining core funding for teaching and learning 568 568Maintaining research funding 330 330Additional student numbers 820 820Access premium for new students 254 254Human resources(1) 602 602Teaching infrastructure(2) 848 2230 3078Research infrastructure(2) 578 1524 2102Knowledge transfer and community links 140 140

Total 4140 3754 7894

Cash terms

Uplift for inflation(3) 900 900

Total cash needs 5040 3754 8794

(1) excludes approx £40m already allocated under rewarding and developing staff initiative

(2) capital needs based on estimates of remedial investment by JM Consulting Ltd (£5300m teaching and £3540m research,UK) of which half to be met in current Spending Review. Recurrent needs represent ongoing renewal and replacement costs of the HE sector asset base.

(3) Increase in £7.2 billion HE public funding at 2.5% pa

Figure 1


Investment need

Restore core funding for teaching andlearning

Restore QR funding to 2001-02 levelsbased on RAE outcomes

Additional student numbers at full unitof funding

Increased access premium for non-traditional students

Human resources

Teaching infrastructure

Research infrastructure

Knowledge transfer

Institutional finances

Adjusting recurrent funding for inflation

Outcome

Maintained/improved quality of teachingand learning provision for all students.

Sustain the sector’s internationalposition, second only to the USA.

The link between teaching and researchis maintained.

Progress towards achieving theGovernment’s 50% participation rate by2010.

The quality of the student experience ismaintained and retention ratesimproved.

Proportionate increases in studentsfrom lower socio-economic groups, withimproved retention rates for this group.

The modernisation of pay structures,helping tackle recruitment andretention problems and allowing greaterdifferentiation of rewards to reflectmarket pay levels and the contributionof staff.

Up-to-date flexible learningenvironment that is fit for purpose andwill provide a broad range of highquality learning opportunities for adiverse student body.

Improved property condition and spaceutilisation to meet NAO targets.

Improved property condition so thatinfrastructure is fit for purpose and canmaintain and enhance the UK’sreputation as a source of world classresearch.

Increased volume of activity betweenuniversities and business and thirdstream activity, with a growth ofcommercial income from non-governmental sources.

Achieve improved operating surplus of3%.

Maintain unit of funding in real terms,allowing the maintenance ofinfrastructure and staff pay and preventa further deterioration of the unit offunding.

Performance measures

Teaching Quality Information (TQI) data (to come on stream during 2004)accompanied by audit with publishedreports.

OECD and OST Science, Engineeringand Technology statistics.

Evidence from a number of typical QAASubject Overview Reports.

DfES measure of 50% participation rate.

QAA institutional reports; HEFCENational Student Survey; HEFCEperformance indicators.

HEFCE performance indicators:participation and course completionrates of young FT entrants from socialclasses IIIm, IV and V (FT only).

UCEA recruitment and retention survey;reports to funding councils in AnnualMonitoring Statements.

Estates Management Statistics (EMS)measures.

EMS measures.

EMS measures and OST SET statisticsand research assessment.

Higher Education Business InteractionSurvey; reports to funding councils inAnnual Monitoring Statements.

Annual Financial Forecasts and returnsto funding councils.

DfES Annual Report.

Figure 2 Impact of additional investment


1.1 Introduction

1. In our 2002 Spending Review submission1, wecalculated that the investment need for highereducation in England and Northern Ireland was£8 billion between 2003/04 and 2005/06. We areheartened that the Government accepted that thiswas a fair statement of what was required and wewelcomed the very substantial additionalresources, an additional £3.7 billion for England,which the sector received from the spending reviewsettlement. As we said in our response to theDfES White Paper The future of higher education“this is a necessary start to undoing the damagecaused by past underfunding and will enableuniversities to work towards meeting theGovernment’s strategic objectives”2.

2. Under this Spending Review, we have identifiedan additional investment need of £8.79 billion forEngland and Northern Ireland. At face value, thismay appear to be an inconsistently large figuregiven that the sector received £3.7 billioninvestment under SR2002. However, we wouldlike to make it clear from the outset that this issuch a substantial sum because we are includingin our calculations the capital investment needfor teaching and research infrastructure that wasdeferred from our last Spending Reviewsubmission. The capital investment needidentified by JM Consulting was so substantialthat we split this investment need across twospending review periods3.

3. Despite this, the SR2002 settlement wasstill under half of the total investment needed bythe sector (see Figure 3). And almost all of theadditional funding for teaching provided by the2002 settlement is earmarked for specificinitiatives and will not translate into core fundingfor institutions. Most importantly, there was littleor no real terms increase in the funding forbaseline teaching4.

4. Significant damage has been done by manyyears of underfunded expansion, which since1989 have seen resources per student fall by

37 per cent5, following a decrease of 20 per centbetween 1976 and 1989 (see Figure 4). In cashterms, nearly £8,000 (in today’s money) was spentper student in 1989-90 compared with just over£5,000 today (see figure 1). The averagestudent:staff ratio for higher education inEngland and Northern Ireland continues todeteriorate; it is now around 23:1, exceeding that of further education of 14.9:1.

5. The most recent financial forecasts for Englishhigher education institutions (HEIs) provided tothe Higher Education Funding Council forEngland (HEFCE)6 also reveal a continued declinein the sector’s operating position over the lastSpending Review period. We commented on theworrying decline in our 2002 submission, and thelatest figures continue this trend. They takeaccount of the additional recurrent funding andthe earmarked funds announced in the lastSpending Review. Table 1 and Annex C of theHEFCE report show that the operating surplus ofthe English education sector was close to zero in2002/03 and is forecast to remain around thislevel from 2003/04 onwards. The higher forecastsurplus for 2003-04 is only through one-offexceptional gains.

6. HEFCE has previously estimated that thesector in aggregate needs an operating surplusof at least three to four per cent of income perannum to provide a positive cash flow forreinvestment and to fund future developments.Set against a three per cent target, the sectorshortfall is assessed at £290m in 2002/03, £195min 2003/04, £331m in 2004/05, £325m in 2005/06and £357m in 2006/07. Within these figures, 50institutions forecast operating deficits in 2002/03,with around one quarter to a third of the sectorexpecting to be operating in deficit over theremainder of the forecast period. These tightoperating margins reflect the impact of highercosts across the sector. They substantially reduceHEIs' ability to provide the investment necessaryto maintain the quality of provision for students.

Part 1 - Spending ReviewSubmission for Englandand Northern Ireland

1 Universities UK(December 2001)Investing for success,Universities UKSR2002 Submission,Universities UK,London.

2 Universities UK(April 2003),Universities UK’sresponse to The Futureof Higher Education,Paragraph 9,Universities UK.

3 See paras 80-106 ofInvesting for success

4 Universities UKMedia Release 343 (7 March 2003)Universities UKresponse to HEFCErecurrent fundingannouncement.

5 This decline wasactually 41% between1989-90 and 2002-03if income from thestudent contributionto fees is excluded.

6 HEFCE Outcomes of2003 financial forecastsand operatingstatements HEFCEreport 2004

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Universities UK Achieving our vision 2004 spending review submission for England and Northern Ireland

Outcome of SR2002 for higher education institutions, England, £M

2003-04 to 2005-06 White PaperCompared with 2002-03 anouncementUUK submission (1)

Teaching(2) 5265 2228Of which Recurrent 3141 1667Of which Capital(3) 2124 561

Research 2797 1476Of which Recurrent 1346 974Of which Capital(3) 1451 502

Total 8062 3704Of which Recurrent 4487 2641Of which Capital(3) 3575 1063

(1) England component of £9.94 billion UK figure(2) Human resources element of UUK submission included with teaching(3) Capital needs based on estimates of remedial investment by JM Consulting Ltd. Half was deferred to next Spending Review.

Figure 3

7. Other key findings are:

• Liquidity, including short-term investments, isforecast to decline from 51 days at 31 July 2002 to45 days at 31 July 2007. These reductions willlimit the financial flexibility available to someinstitutions to manage unforeseen events,representing an increased level of risk.

• The recent level of recurrent funding and netcontributions from operating activities arecurrently insufficient to finance all capitalexpenditure while universities' ability to take onextra borrowing is constrained by the capacity torepay from operating cash flow.

PUBLICLY PLANNED HIGHER EDUCATION FUNDING(1) : FUNDING PER STUDENT 2001-02 PRICES,£, ENGLAND, 1989-90 TO 2002-03

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

1989

-90

1990

-91

1991

-92

1992

-93

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-94

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-95

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-96

1996

-97

1997

-98

1998

-99

1999

-00

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-01

2001

-02

2002

-03(pro

v)

including student fees contribution

excluding student fees contribution

( 1) HE F C E / T T A g r ant and t uit io n f ees. St ud ent p r ivat e f ee

co nt r ib ut io n includ ed f r o m 19 9 8 -9 9 .

Figure 4


8. The financial position of the higher educationsector continues to deteriorate. At the same timeinstitutions face substantial and increasing costpressures. These are detailed in the argumentand evidence section that underpins thissubmission8. Current resources are inadequatefor the sector to maintain the range and qualityof its current activities.

9. Universities UK welcomes and supports theGovernment’s proposal to replace the currentsystem of up-front fees for full-timeundergraduates with a graduate contributionscheme and the introduction of a measure offlexibility in the level of fees that highereducation institutions may charge full-timeundergraduates. While public funding will alwaysprovide the majority of funds for the sector as awhole, private funding from graduates, industryand business will make an increasingly importantcontribution. We also welcome the Government’scommitment to provide immediate income toHEIs, equivalent to the fee, following the removalof an up-front contribution from the student.These proposals will provide additional incomefor universities and, in the longer term, will gosome way towards solving some of the sector’sfunding problems.

10. However, over the life of this SpendingReview, additional income from differential feeswill be small. We are therefore excluding thisfrom our calculations when assessing thefunding needs of the sector for this period. Thisis for a number of reasons. Income from fees willnot be available for the whole life of the SpendingReview period, and the introduction of fees willbe phased. The level at which individualinstitutions will set their fees is currentlyuncertain and it is also unclear at this stage howthis will be differentiated across the sector (byinstitution or by course). Bursary schemes, tosupport disadvantaged students and ensure theydo not face financial penalties, will absorb part ofthis additional income. There will also besignificant start-up and administrative costsattached both to these bursary schemes and adifferential fees system.

7 HEFCE Outcomes of2002-03 financialforecasts and operatingstatements HEFCEreport 2003/02

8 See section 2.3 ofthe UK-wideArgument andEvidence section.

Forecast operating surplus for HEIs in England against a benchmark of 3% per annum

Income 3% target forecast forecast Shortfalloperating operating operatingsurplus surplus surplus

£m £m Percentage £m £m

2002/03 12547 376 0.69% 86 2902003/04 13410 402 1.80% 207 1952004/05 14002 420 0.63% 89 3312005/06 14616 438 0.77% 113 3252006/07 15153 455 0.65% 98 357

Source: HEFCE Outcomes of 2004 Financial Forecasts circular 04/04 table 1

Figure 5


1.2 Maintaining core funding for teaching

11. In Investing for success, our SR2002submission, we stated that “Our case foradditional funding rests on the assumption thatthe unit of funding per student will continue to bemaintained in real terms”9. We argued that aftera reduction of nearly 40 per cent in the unit offunding for all teaching and learning activitiesover the past 10 years, it was essential for unitfunding to be stabilised and fully adjusted forinflation if quality were not to be adverselyaffected.

12. Unfortunately the SR2002 funding settlementfor England and for institutions in NorthernIreland did not improve recurrent funding forteaching and learning. This situation wasworsened by HEFCE’s recurrent fundingallocations for 2003/04, when, in attempting tomake provision for the additional costs toinstitutions of recruiting and retaining wideningparticipation students, it chose to top-slice themainstream teaching grant to increase wideningparticipation funding provision.

13. Universities’ commitment to widening accessis not in doubt; but it cannot be achieved withoutappropriate and sustained financial support bothfor institutions and students. Universities UK hasconsistently asked that the additional costs ofprovision for widening participation studentsshould be identified, calculated and met by thefunding council. We are therefore working withHEFCE and SCOP to achieve this through a majorstudy10 to determine a robust system for costingthe additional charges incurred by institutions inrecruiting and retaining widening participationstudents, and enabling them to succeed in theirstudies. But we have also consistently arguedthat widening participation supplements shouldbe just that, additional funding provided over andabove the baseline funding for teaching andlearning provision as calculated by the funding methodology. As we said in our response to theDfES White Paper “Mainstream teaching does not

cost less because widening participation costsmore”11.

14. The inadequate funding base for teaching andlearning provided for English institutions byHEFCE’s funding methodology remains a majordifficulty for the sector. The latest TransparencyReview data12 demonstrates that the total overallcost to universities and colleges of deliveringteaching and learning activities is significantly inexcess of the price paid for them by Government.

15. The funding methodology for teaching andlearning calculates allocations according to whathas been paid in the past, adjusted (sometimesonly in part) for inflation and individualcircumstances. As noted above, this hasdelivered a 40 per cent reduction in the level ofunit funding in the last 10 years alone.

16. The sector must abandon this historicmethodology and move to a system where HEFCEfunds the cost to institutions of delivering theteaching and learning provision the Governmentrequires. We welcome HEFCE’s recentannouncement that in principle we should moveto a system for funding teaching that is informedby costs and we stand ready to work with them todetermine an appropriate evidence base. Thisshould form the basis for a wholly new fundingmethodology in line with full economic costprinciples. Such a development would open theway for negotiations with all public funders ofteaching and learning, including the Departmentfor Education and Skills, the Department ofHealth and the Teacher Training Agency, toachieve an equitable funding formula in line withthe principle of full economic costing required byHM Treasury and now a condition of grantspecified in HEFCE’s new financial memorandumwith institutions.

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9 Investing for successpara 49.

10 Undertaken by JMConsulting; earlyresults from theresearch havecalculated a UK-wideaverage premium of31% for the overalladditional costs ofactivities currentlyprovided byinstitutions for therecruitment andretention of WPstudents. The fullreport is expected byJanuary 2004.

11 Universities UK(April 2003)Universities UK’sresponse to The Futureof Higher Education

12 HEFCE circularletter 11/2003 (14 May2003) TransparencyReview Data reportedfor 2001-02.


17. Universities UK is convinced that maintainingthe unit of funding for teaching and learningprovision is essential if the internationalreputation and high quality of the sector’sprovision are to be maintained. This has been toooften eroded in recent years. The top-slicing ofthe unit of funding for mainstream teaching andlearning provision by HEFCE must be reversed ifinstitutions are to be able to respond to theGovernment’s targets for the qualified workforceneeded to ensure that the economy and publicservices prosper.

18. We therefore consider it essential to restorethe level of funding per student to the baselineallocation level of HEFCE’s 2002-03 allocations.The figure of £568 million (recurrent funding) is thus restored to the funding baseline inFigure 1, which sets out our summary total of the additional funding needs of the sector from 2005-06 to 2007-08.

1.3 Maintaining research capability

19. Equally important is the question of researchfunding and to what extent the funding councilshould continue to concentrate its allocation ofresearch (QR) funding. The Government’s WhitePaper13 assumes that the concentration ofresearch will enhance national researchperformance. This assumption is based onvirtually no supporting evidence. The research we commissioned from Evidence Ltd hasdemonstrated convincingly that investment indepartments scoring a four or a three in the 2001Research Assessment Exercise (RAE) isimportant for developing the performance of theresearch base at regional, national andinternational levels14.

20. The report’s three key findings specificallyshow that:

• there is no evidence that there is a currentproblem with the performance of the UKresearch base that needs to be addressed, eitheroverall or at the level of the units most likely tosee a funding loss;

• if there were an emerging problem, then thereis no clear evidence that the UK’s researchperformance would benefit from furtherconcentration of research funding and

• there is evidence that research concentrationas proposed would seriously exacerbate existingregional differences in research capacity andperformance.

13 Department ofEducation and Skills(2003) The future ofhigher education.

14 Universities UK(October 2003)Funding researchdiversity: The impactof furtherconcentration onuniversity researchperformance andregional researchcapacity.


21. In addition, higher education institutionsbenefit from the vital interdependence ofteaching and research. Removing or reducingfunding from departments graded three and fourwould have a significant impact on individualsubject areas. Removal of research funds is likelyto damage the teaching mission, as staff will lackthe necessary resource base to maintain theirknowledge at the cutting edge of their discipline. Evidence of the link between research andteaching is demonstrated repeatedly in QAAreports. These consistently highlight the use ofrecent research findings to enrich the curriculumacross all subject areas15.

22. In terms of the UK’s reputation for researchand development16, it is also important to retainsome parity of research funding betweenEngland, Scotland, Wales and Northern Ireland interms of the specific outcome of the RAE. Thiswas, after all, conducted as a UK-wide exercise.

23. The uncertainty about future funding forresearch also causes great difficulties for thegood management of research investment andplanning. It is essential that the level of fundingfor each grade is reasonably predictable so thatHEIs can invest and plan within a stable financialframework.

24. It is essential that QR funding is restored tothe level of the original 2001 RAE allocations.This restores the cuts made by HEFCE toresearch funding levels in 2002/03 and again in2003/04 and once again puts research funding forHEIs in England and Northern Ireland on a parwith institutions in the other countries of the UK.The total additional recurrent fundingnecessary for this would be some £330 million(recurrent) at 2004-05 prices.

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15 See, for examplepara 18 and Annex Fof Universities UKBackground Paper ‘The interdependenceof teaching andresearch’ (25November 2003)which was circulatedas Annex B of I-NoteI/03/126, ‘UUKresponse to DfESconsultation ondegree awardingpowers and universitytitle’.

16 As demonstrated inthe UK-wideArgument andEvidence section ofthis paper, see section2.2.4 below.


1.4 Additional investment needs

An outline of the investment needs of the sectorincluded within this SR2004 submission is givenbelow.

1.4.1 Additional student numbers25. Universities UK shares with the Governmentthe objective of giving all those who can benefitfrom higher education the opportunity to do so,regardless of their background. This is reflectedin national education targets:

• expansion to 50 per cent of young people byage 30 benefiting from higher education (HE) inthe UK by 2010 and

• widening participation so that more of the 18plus age group in HE come from under-represented groups (for example those fromlower socio-economic groups, students withdisabilities and some ethnic groups).

26. The UK HE sector is fully committed to thesetargets and is working actively with educationand other sectors to ensure that we progresstowards them as quickly as possible. But it willnot be possible to achieve the Government’sparticipation targets without attracting asubstantial number of prospective students withno family background of (or current aspiration to)higher education to enrol on HE courses. Inaddition, there will need to be action across allage ranges, not just 18 to 30, and in relation toboth full- and part-time higher education,continuing professional development and workbased learning. Future expansion will also needto embrace those entering higher educationthrough vocational routes and mature studentsentering through the accreditation of priorexperiential learning.

27. For universities, this means that they willneed to continue to collaborate with educationand other sectors to:

• narrow the participation gap between the mostand least affluent groups;

• improve participation, retention andprogression of specific social groups in HE;

• ensure comparability between subjects andbetween universities, whilst recognising diversityof mission.

28. It is essential that all support for wideningparticipation activities is based on the full unit offunding and uplifted for inflation. As arguedabove17, this must be provided from genuinelyadditional funds and not by top-slicing corefunding for teaching. Any expansion at a marginalrate, as in the past, would risk damaging theexperience of students in higher education and isno longer appropriate for a sector with a diversestudent body and limited capacity for expansionwithout corresponding infrastructure investment.

29. The cost of supporting programmes that willincrease the proportions of students from socialgroups IV and V should be built into fundingbaselines. This is particularly important as it willenable universities to reduce class sizes. This isperhaps the most important single measure thatwill help to underpin higher retention rates.Further substantial investment is necessary ifthe 50 per cent target is to be achieved whilemaintaining or improving current retention rates.

30. Demographic projections show that thenumber of young people reaching the age of 18during the next Spending Review period (that isbefore 31 July 2007) will increase significantlyabove present levels18. This means that totalstudent numbers will need to rise substantially ifthe same proportion of young people are tocontinue to enter higher education between2005/06 and 2007/08 as happened in 2003/04.

17 See section 1.2

18 Higher EducationPolicy Institute (2003),HE supply and demandto 2010


31. Although there will be a steady increase in18-21 year-olds over the next 10 years, the socialcomposition of this group may change in favour ofthose who have traditionally participated least inhigher education19. This presents a genuineopportunity for us to increase substantially theproportion of those from social groups IV and V asstudent numbers increase in line with theGovernment’s target of a 50 per cent participationrate for young people (aged 30 and under) by2010. But this can only be achieved withadditional investment. Institutions in NorthernIreland are already near a 50 per centparticipation rate; however, a key priority forthem is to attract a larger proportion of thosestudents from lower social economicbackgrounds. Additional investment to help themrecruit and retain these students is thereforecrucial.

32. We calculate that to take account of theimpact of demographic change and to meet theGovernment’s 50 per cent participation target willrequire an increase of 30,000 additional full-timeequivalent places (FTEs) each year of theSpending Review period. This will cost a total of£820 million (recurrent expenditure).

33. As we argued in our last Spending Reviewsubmission20, further expansion of the sector willdepend specifically on the recruitment andretention of non-traditional students. Theadditional costs to institutions of the activities andservices targeted at such students is now shownto be 31 per cent21 above the cost to institutionsof recruiting and retaining traditional students.The 31 per cent widening participation premiumshould therefore be paid on all additional studentplaces funded during this Spending Reviewperiod. This totals £254 million (recurrentexpenditure).

1.4.2 Human resources34. Intellectual capacity is of prime importance tothe sector and is underpinned by universities’ keyresource - its staff. Staff are the core element ofteaching and research activities, accounting for58 per cent of university expenditure. The UK’sfuture international reputation in universityteaching and research depends on the successfulrecruitment, retention, motivation andcontribution of high calibre staff.

35. We have outlined the extent of the long-termpay problems facing the sector in the UK overviewattached to this submission22. Universities aremaking remarkable progress in addressing issuesthat in the past have limited the ways in whichinstitutions can deal with some of these long-standing pay problems, and respond effectively tothe employment market. Underpinning thisreform is the modernisation of pay structures.The new Framework Agreement for paymodernisation will help to tackle low pay andequal pay issues, deal with recruitment problemsand provide better rewards for the contributionstaff make. This directly addresses issues raisedin the Dearing and Bett reports, which identifiedoutdated pay structures as a major obstacle toachieving equal pay for work of equal value. Inthe long-term this will lead to greater flexibilityand savings. However, significant up-frontinvestment is needed to deliver change.

36. Whilst the Framework Agreement will helpinstitutions to unlock the funds available for paythrough both phases of HEFCE’s Rewarding andDeveloping Staff Initiative, work conducted byNigel Brown Associates for Universities UK showsthat a total of £602 million (recurrent funding)additional investment is needed for humanresources in England and Northern Ireland overthis Spending Review period to allow the sector tosuccessfully modernise pay structures23.

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19 HEFCE circularletter 01/62 ‘Supply and demand in highereducation’

20 Investing forsuccess paras 11, 55-6, 58-60.

21 By JM Consultingwhich is currentlyundertaking a costingand pricing study forHEFCE, UniversitiesUK and SCOP. Theproject is to develop aTRAC equivalentmodel for theadditional costsinstitutions incur fromthe activities andservices currentlyprovided for therecruitment, retentionand support of non-traditional students.The final report of thisresearch project willbe published in 2004.

22 See section 2.4.1

23 Nigel BrownAssociates for UUK(2003) The Costs of Pay Modernisation(unpublished report)


1.4.3 Physical resourcesTeaching infrastructure37. Significant investment in the teachinginfrastructure in English higher education isurgently required to address historicmaintenance backlogs and allow for themodernisation and upgrading of buildings andequipment. This investment is essential if theteaching infrastructure is to be fit for purposeand suitable for contemporary teaching andlearning provision and a diverse student body.The full extent of the problem and the categoriesof investment need are outlined in the UKoverview attached to this submission24.

38. In our SR2002 submission we made a strongcase for substantial capital investment based onthe findings of an independent report by JMConsulting25. For England this figure stood at£4.2 billion26. As this requirement for a one-offinjection of capital funding was so substantial, weproposed phasing the additional investmentequally across two Spending Review periods. We are therefore requesting the remainder ofthe teaching infrastructure funding for Englandand Northern Ireland, a total of £2.230 billion(capital funding), as part of our submission forthe 2005-06 to 2007-08 Spending Review period27.

39. In addition to this one-off funding injection toaddress the backlog maintenance needs of thesector, there will in parallel be a need forcontinuing investment to prevent a recurrence ofthis problem by providing for infrastructurereplacement and renewal requirements. This yields a total requirement for an additional£848 million (recurrent funding)28 over thisSpending Review period for England andNorthern Ireland.

40. Without addressing these remedialinvestment needs we cannot hope to safeguardstandards, maintain the quality of students’learning experience or meet the Government’sperformance and competitiveness targets foreducation, economic performance and socialinclusiveness.

Research infrastructure41. Additional investment in the researchinfrastructure in English higher education isessential if we are to sustain world-classuniversity research and strengthen knowledgetransfer capability. The full extent of the problemand the categories of investment need areoutlined in the UK overview attached to thissubmission29. Our SR2002 submission made astrong case for additional capital investmentbased on independent evidence30. For Englandthis figure stood at £2.9 billion31. Because thiswas such a substantial amount we proposed tophase this capital funding across two SpendingReview periods. We are therefore asking for theremainder of this research infrastructure fundingas part of our submission for the 2006-07 to2008-09 Spending Review period. For Englandand Northern Ireland this figure is £1.524 billion(capital funding)32.

24 See section 2.4.2Teachinginfrastructure

25 HEFCE, SCOP, UUK(2002) Teaching andlearning infrastructurein higher education

26 This is in 2001prices.

27 This figure hasbeen adjusted to2004-05 prices.

28 This figure is basedon JM Consulting’sestimate thatreplacement/renewalcosts will equal 4% ofestates replacementcost per annum.Based on the latestEMS report (HEFCE02/53), insured estateis £31 billion in2000/01, thereforerequired maintenancespend equals £1240million. Actual spendequals £446 million,therefore netadditional spendrequired equals £794million. Uprated to2004-05 prices usingGDP deflator thisamounts to £883.Using the JMConsulting 60:40allocation betweenteaching and researchgives £530 millionteaching and £353research.

29 See section 2.4.2Researchinfrastructure.

30 OST (2002) Study of science researchinfrastructure Study byJM Consulting for OST

31 This is in 2001prices.

32 This has beenadjusted to 2004-05prices.


42. Recurrent research funding is also requiredto provide for ongoing replacement and renewalto avoid similar problems occurring in the future.It is also necessary to provide resources toattract and retain high quality research staff andto support the improved quality and quantity ofUK universities' RAE 2001 outcomes33. We aretherefore calling for a total rise in recurrentresearch funding for England and NorthernIreland of £578 million (recurrent funding)34

over this Spending Review period, noting thatthis will be a continuing need in subsequentyears.

43. We warmly welcome the additionalinvestment in research, with an uplift for SRIFfunding, announced as part of the SR2002. Wealso welcome additional research infrastructurefunds provided over previous Spending Reviewsand by the Wellcome Trust. However, theproblem has not yet been solved. We needsustained investment in research to ensure thatinvestment backlogs are addressed and theinfrastructure is adequately maintained tosupport an internationally competitive position.The sciences have done relatively well, but theinvestment needs of the arts and humanities,vital to the success of the rapidly growingcreative industries sector, have not yet beenaddressed.

1.4.4 Knowledge transfer and community links44. Universities welcome the role they play in themodern economy, not only as creators andtransmitters of knowledge, but also as agents of economic growth, including thecommercialisation of their research, acting asthe hub of business networks and industrialclusters, and contributing to the development ofentrepreneurialism. Ministers acknowledge thatuniversities have risen to the challenge of theknowledge economy, and the Government reviewof business-university collaboration conducted byRichard Lambert has reinforced this35. Universityresearch and knowledge transfer are nationalassets that generate public benefit, helping UKbusiness and industry develop a competitive edgein world markets. Universities contribute toinnovation in many ways, including:

• increasing the stock of useful knowledge thatunderlies new industries, applications, andimproved quality of life;

• contributing to knowledge transfer to UKbusiness and industry through the delivery ofskilled graduates;

• spinning out companies, licensing theexploitation of intellectual property, etc;

• creating new scientific instrumentation andmethods;

• providing independent expert advice, industrialconsultancy, problem-solving for firms and

• forming networks and stimulating socialinteraction.

PART133 Higher Educationand ResearchOpportunities in the UK(HERO), RAE, 4/01(September 2001)

34 Same formula as for Teachinginfrastructure.

35 HM Treasury (2003)Lambert Review ofBusiness - UniversityCollaboration


45. The Government announced in the strategydocument Investing in innovation: A strategy forscience, engineering and technology (DTI, DfES,HM Treasury, July 2002) that it would consolidatethe HEIF fund as a permanent third stream offunding for universities, with an investment of£90 million per year by 2005/06 (£171 millionover two years). The Government’s objectives indoing this are to improve the UK's innovationperformance, raise productivity, and delivereconomic growth through investing in theinteractions between HEIs, business and society.This investment in the second round of HEIFintends to:

• build on what has been achieved so far;• release further the potential social and

economic benefits of the HE sector; • help HEIs to develop their mission in

engagement with business and the community; • ensure a lasting culture shift in HEIs by making

third stream activity an integral part ofinstitutions’ work; and

• develop the responsiveness of HEIs to theneeds of business.

46. These all need long-term investment and thefinal report of the Lambert Review acknowledgesthat building effective collaborations takes time.The Lambert Review reports that universitiesneed consistent and predictable funding - astable funding model for third stream activities,rewarding performance and investing inpotential, with the long-term security that willgive universities incentives to invest their ownresource in developing the activity. Lambert’sfinal report not only celebrates the success ofuniversity-business collaboration so far butstates that “available evidence on the social andeconomic returns on research justify significantinvestment”. The Lambert Review supports theneed for third stream funding (and supportssimilar calls from CBI and from Sir GarethRoberts) and recommends that it is increased toaround £150m per annum in order to increasethe flow of knowledge and ideas from the sciencebase into business and the wider community,supporting the funding need we highlighted inour SR2002 submission. This amounts to anadditional £140 million (recurrent funding) aspart of this Spending Review. With increasedfunding, universities can increase their capacityto engage with the government agenda further toincrease this type of collaboration.


47. The final report of the Lambert Reviewrecognises the importance of balancingtechnology-based transfer activity with broaderwork, again something that we highlighted in theSR2002 submission. Activity linked to the artsand humanities, the service industries and thecultural and social economy may havesubstantial local, regional or nationalimportance. Funding for this area shouldtherefore not be tied to specific activities orsubject fields. The Lambert Review concludesthat resources are increasingly concentrated on asmall number of world-class researchdepartments, and that this is likely to have anegative impact on the level of business-university collaboration in the UK. The Reviewsuggests that the Government should take stepsto fill this emerging funding gap andrecommends they provide a significant newstream of business-relevant research funding,which would be available to support universitydepartments that can demonstrate strongsupport from business. The Review advises thatan appropriate figure would be in the region of£100m-£200m. At present it is not clear how thisamount would be distributed, although Lambertmakes several suggestions. We will not thereforeinclude this as part of our calculations for thisSpending Review. However if this fund isdistributed through HEIF this should beadditional to the £140m we have asked for.

48. We recognise that, like our SR2002submission, this Spending Review submissionlists a significant number of additional fundingpriorities. The combined total investment needidentified with these priorities, detailed in Figure 1, is £8.79 billion. Of this, £3.75 billion isassociated with the need for capital investment inthe teaching and research infrastructure andsome £5 billion for essential recurrent fundingneeds. Each funding priority has been costed onthe basis of independent research and what willbe achieved as a result of the additionalinvestment shown in Figure 2. We believe thatthis level of investment over the Spending Reviewperiod is essential for our universities andcolleges. This is an investment in the nation’slong-term economic and social prosperity, notjust in the higher education sector. Based oncurrent performance levels36, the total economicimpact for England and Northern Ireland of theinvestment in HE we have requested could be ofthe order of £22 billion.

PART136 University ofStrathclyde (May 2002)The impact of highereducation institutionson the UK economy: areport prepared forUniversities UK, p23.

1.5 Conclusion


2.1 Introduction

1. Part two comprises the supporting argumentand evidence on a UK-wide basis and updatesour 2002 submission. It returns to the two majorthemes of the last submission: the investmentneeds of the teaching and the researchinfrastructure and the investment needs ofrecurrent funding for teaching, especially in thelight of the need to modernise pay structures forall staff in the sector. These are the two centralpriorities of the separate 2004 Spending Reviewsubmissions Universities UK is presenting forEngland and Northern Ireland, for Scotland andfor Wales. Although institutions are diversifyingtheir funding sources and the proportion of theirtotal income coming from public funds isreducing1, it is unrealistic to imagine that thelarge sums of money needed for core teachingcosts can be provided for without substantialongoing public investment.

2.2 Success of UK universities

2. UK universities have coped exceptionally wellin an environment of increasing cost pressuresand a decreasing unit of public funding. Figure Agives some indication of what universities havedelivered despite these difficulties in comparisonwith the NHS, which has received substantialadditional public investment over the last fewyears. The extent of the success and strength ofHE across a diverse range of activity is outlinedbelow.

Part 2 - Argument andevidence: Higher educationin the UK

1 Universities UK(2003) Patterns ofhigher educationinstitutions in the UK:Third report, a reportby Professor BrianRamsden to theLonger Term StrategyGroup of UniversitiesUK, Universities UK,London


PART2Figure A

UK undergraduate numbers on 1998 base

UK postgraduate numbers on 1998 base

Overseas student numbers (UG & PG) on 1998 base

% increase on 1996 average grade of RAE submissions

Academic staff numbers on 1998 base

Higher education public expenditure

Inpatient Cases

Weighted Cases

Day Cases

Total Cases

Total Resources

Higher education activity and public resources

NHS: Activity and resources

Inde

x 19

98/9

9 =

Bas

e 10

0In

dex

1998

/99

= B

ase

100

2000/011998/99 2001/021999/00

20011999 20022000

140

130

120

110

100

Year ended 31 March

Source: CIPFA Statistical Research Bulletin Issue 1 May 2003 p.6 Article ‘State of Health’, Chris Green

125%

120%

115%

110%

105%

100%

95%

123%

academic year

Source: HESA website, DFES Departmental Annual Report, RAE 2001


2.2.1 Contributing to economic growth3. There is no room for doubt about the directeconomic importance of higher education for thenational economy. Higher education has a crucialrole to play in wealth creation and the continuingdevelopment of a knowledge-based economy. Ahighly skilled workforce contributes directly tothe UK’s international competitiveness and itscapacity for innovation and product development.University research and exploitation of theknowledge it generates lie at the heart of aproductive economy, through commercialisationof research, stimulating business networks andindustrial clusters, and drivingentrepreneurialism.

4. A recent UK-wide study on the economicimpact of HEIs2 demonstrates that HEIs have ahuge and positive impact on the local, regionaland national economies within which theyoperate. The report shows that throughincreasing international student fee payments in1999/2000 the HE sector generated £2.7 billion inexport earnings for the UK. In 1999/2000 outputdependent on HE amounted to £34.8 billion and£13.3 billion was paid in wages to UK householdsas a result of the HE sector’s activity. While HEIsproduce service outputs that generate incomeand employment within HEIs, the provision ofthese services also generates additional demandfor UK goods and services3. For every £1 millionof HE output £1.56 million is generated across awide range of other sectors.

5. During the same period UK HEIs generatedover 562,000 full-time equivalent jobs, or around2.7 per cent of total UK employment4. The reportalso shows that the skills profile in HEIs is higherthan the UK average and that they are likely toencourage the development of skills andattainment of further qualifications among allcategories of staff. The employment multiplierfor HEIs is 1.80, indicating that for every 100 jobscreated directly within a HEI another 80 aregenerated elsewhere in the economy, across allmajor industrial sectors. This report also showsthat HEIs tended to make a larger proportion ofpurchases of UK goods and services than anumber of comparator industries5.

6. Emerging findings from a report on thespecific economic impact of HEIs in Londonshows that they contribute four per cent ofLondon’s GDP, with an income of £3 billion anddirect spending of £2.9 billion on UK goods andservices6. Initial findings suggest that LondonHEIs alone generate a minimum of £8.67 billionin the UK economy.

2 University ofStrathclyde (May 2002)The impact of highereducation institutions onthe UK economy: areport prepared forUniversities UK.

3 This is through boththe wage expenditureof HEI employees andthrough HEI purchasesof UK goods andservices. HEIs alsotend to make a largerproportion ofpurchases on UK goodsand services than anumber of comparatorindustries. The outputmultiplier for HEIsranked 43rd out of the123 input-outputsectors in the UKmodel constructed forthis study, which wouldsuggest that theproportion of HEIexpenditure on UKgoods and services wasrelatively high.

4 This figure includesthose directly employedby HEIs and the “knockon” employmentgenerated outsideHEIs.

5 These include airtransport; officemachinery; aircraft andspace; banking/finance;R&D; computingservices and legalactivities.

6 Unpublished report toLondon Higher(previously the LondonHigher Educationgroup) by StrathclydeUniversity using itseconomic impactmodel approach.

7 The latestOrganisation forEconomic Co-operationand Development(OECD) educationstatistics show that theprivate rate of return ona tertiary qualificationfor UK males is thehighest (at 17%) of allcountries for whichcomparable data areavailable and that theeducational advantageof a degree in obtainingemployment is greaterthan the average forOECD countries(Education at a glance,2003).

8 See section 2.3

9 See section 2.2.3

10 At 0.7% comparedwith the OECD mean of1.0%; only two OECDcountries invest a lowerpercentage. Educationat a glance: OECDIndicators 2002,Organisation forEconomic Cooperationand development(OECD), 2003.


PART22.2.2 An efficient and well managed sector7. UK higher education performs exceptionallywell7 despite being under enormous financialpressures8. It is a successful, low-risk sectoroffering very cost efficient provision with highgraduation rates9. At the same time, publicexpenditure on tertiary education institutions asa percentage of Gross Domestic Product (GDP) isone of the lowest in the OECD10 and is in declinerelative to other OECD countries (see figure B).The exceptional performance of the UK cannot bemaintained long-term without additional publicinvestment.

8. Research commissioned by Universities UK onthe internal economy of UK higher educationinstitutions has shown strong financialstewardship in the higher education sector aswell as imaginative and effective aspects ofgovernance, leadership and strategicmanagement11. Universities’ ability to managechange has been remarkable, involvingcollaborating and restructuring, and innovation incourse provision, whilst keeping up high qualityand standards, both in terms of QualityAssurance Agency (QAA) reviews and customersatisfaction. This has all happened within thecontext of a decreasing unit of funding and yearon year funding fluctuations.

9. As the interim report by the Lambert Reviewhighlights, institutions have been working hard tostrengthen their systems of management andgovernance12. The report also correctly indicatesthat there is still work to do. To meet thischallenge, considerable effort is being made toensure that senior staff are both equipped andsupported to manage effectively13.

10. Universities are fully accountable for theiruse of public money. Financial probity ismeasured and accountability is maintained by acombination of layers of audit and a risk-basedapproach to scrutiny, providing significant andsubstantial public safeguards14. In terms of theirfinancial reporting, the higher education sectorhas robust accounting and auditing procedures inplace15. The funding councils also requireinstitutions to submit detailed strategic plansevery three years, and performance against theseis monitored closely.

11 Universities UK(September 2002) Theinternal economy of UK higher educationinstitutions 1994-2000: areport by Nigel Brownand Brian Ramsden tothe Longer TermStrategy Group ofUniversities UK,Universities UK,London. See Forewordby Professor Sir DavidWatson.

12 HMT (July 2003)Lambert Review ofBusiness-UniversityCollaboration, asummary ofconsultation responsesand emerging issues.

13 Current initiativesinclude the HEFCERewarding andDeveloping StaffInitiative; the HELeadership Foundation;the HEFCE fund forgood managementpractice; governance issupported andreinforced by theCommittee ofUniversity Chairmen(CUC) which issuesguidance and run aGovernor DevelopmentProgramme.

14 Higher educationinstitutions arerequired by theirrespective fundingcouncil’s Audit Code ofPractice to have aneffective internal auditfunction, covering thewhole of the internalcontrol system of theinstitution. TheNational Audit Officealso has inspectionrights that allow it toinvestigate any financialor value for moneymatter at institutionsfunded by the fundingcouncils.

15 Institutions’accounts are preparedeach year inaccordance with theStatement ofRecommended Practice:Accounting for Furtherand Higher Education(SORP). Highereducation institutionsare required to submittheir accounts to thefunding counciltogether with anannual monitoringstatement (AMS) and a corporate planningstatement (CPS).


2.2.3 High graduation rates and employability11. The sector achieves high graduation rates16

and there is strong demand for graduates in theUK economy. The returns for a degree are alsobuoyant, with average graduate starting salariesin 2003 up by four per cent to £20,30017. Studentsand graduates are generally very satisfied withtheir courses18. Indeed a survey of over 400,000graduates across Europe showed that UKgraduates rated their experience more highlythan their European counterparts19.

12. The personal benefits of higher education areclear, with graduates earning higher salariesthan non-graduates and far more likely to beworking in professional-level occupations thanany other education group20-21. UK universitiesare also producing graduates with the skills andknowledge base appropriate for employment.Almost all are employed or studying six monthsafter graduation22 and graduate unemploymentfell steadily from 1993 to 200023. All HEIs providevocational HE, and the vast majority of studentsundertake some form of work-related learningas part of the curriculum and/or have directemployment experience. The Universities UKreport Enhancing Employability, RecognisingDiversity shows that HEIs have developedimaginative initiatives designed to both meet theneeds of a modern workplace and those ofemployers in a range of work settings24.

16 This year’s OECDstatistics show thatthe UK continues tohave the highest firstdegree graduationrate of all OECDcountries, with 37% ofthe typical age groupcompleting a degreecompared with Franceat 25% and Germanyat 19%, and one of thehighest completionrates at 83%. OECDEducation at a glance:OECD Indicators 2003

17 Association ofGraduate Recruiters(AGR), graduaterecruitment survey,2003

18 UNITE/MORIStudent living report2003

19 Brennan J,Johnston B, Little B etal, The Employment of Graduates:comparisons withEurope and Japan,HEFCE/OpenUniversity, 2001

20 Careers ServiceUnit (CSU) survey ofgraduate and non-graduate earningsfrom the LabourForce Survey, spring2003.

21 Between 1993 and2000, men with adegree earned onaverage 15% morethan those with two ormore A-levels butwithout a degree. For women, theequivalent premiumwas higher, at 19%.(Walker and Zhu TheReturns to Education:evidence from theLabour Force Surveys,DfES/University ofWarwick, 2001).

22 HESA firstdestinations survey,2003

23 AGR, AGCAS,UCAS and CSU Whatdo graduates do?

24 Universities UK(2002) EnhancingEmployability,Recognising Diversity,Universities UK,London

1 Finland 1.72 Canada 1.63 Denmark 1.54 Sweden 1.55 Austria 1.26 Belgium 1.27 Ireland 1.28 Norway 1.29 Switzerland 1.2

10 France 1.011 Germany 1.012 Netherlands 1.013 Portugal 1.014 Turkey 1.015 Greece 0.916 Hungary 0.917 New Zealand 0.918 Spain 0.919 USA 0.920 Australia 0.821 Czech Republic 0.822 Mexico 0.823 Poland 0.824 Italy 0.725 Slovakia 0.726 United Kingdom 0.727 Korea 0.628 Japan 0.5

OECD mean 1.0

Source:OECD Education at a Glance 2003

Public expenditure on tertiary educationinstitutions as a percentage of GDP, 2000

Figure B


PART22.2.4 Strong research performance13. UK researchers have continued to deliver anoutstanding performance, both in terms ofquality and value for money. Across the greatmajority of disciplines, the UK's researchproductivity and quality remains second only tothe US, and its share in citations is stillincreasing. Of the research submitted at the lastResearch Assessment Exercise, 64 per cent werefound to be of national or internationalexcellence, a rise from 43 per cent at theprevious assessment exercise25. As recentlyacknowledged by the Office of Science andTechnology (OST), UK researchers produce 16papers per $1 million of research funding,compared to 9.9 in the USA and 3.6 in Japan, andthey are much more effective in getting morecitations per paper produced26. UK highereducation institutions have also been significantlymore successful than any of their competitors inwinning framework research contracts funded bythe European Union27.

2.2.5 Contributing to the health service14. The Universities UK publication, Partners inCare28, documents the full extent of thepartnership between universities and theNational Health Service (NHS). The HE sector, inpartnership with the NHS, provides almost allpre-registration education for our doctors,dentists, nurses, midwives and allied healthprofessionals. Universities also undertake mostof the clinical and basic medical research onwhich the future of the NHS depends, and theirclinical academic staff make a substantialcontribution to patient care. This partnership isessential to securing a health system that meetsthe future needs and expectations of society.Universities educate more than 292,000 healthprofessionals (2001/2002), who go on to work inthe NHS, the voluntary sector and theindependent sector.

15. In Wales the recent collaboration between thelocal NHS trust, the University of Wales Swansea,and the University of Wales College of Medicineto set up a clinical school in Swansea will deliverincreased student capacity for medical studentstraining in Wales. It will provide a means forincreasing access to medical training, .bringingmore young people with a Welsh speakingbackground into medicine, who are likely to stayand practise in Wales.

25 Funding ResearchDiversity: TechnicalReport (2003), EvidenceLtd.

26 Office of Science and Technology (July2003) The Forward Look2003. Governmentfunded science,engineering andtechnology.

27 Information providedby the United KingdomResearch Office inBrussels (UKRO).However, the fact thatthe EU provides only50% of the agreedproject costs and looksto participants to findthe remaining 50%means that UKuniversities will beforced to substantiallyreduce theirparticipation inFramework 7. Unlikeother Member States,the UK does not providepublic funds for thispurpose. QR funding istotally insufficient, andits allocation is notrelated to success inFramework researchprogrammes.

28 Universities UK(2003) Partners in care:Universities and theNHS, Universities UK,London.


2.2.6 Contributing to business and the regions16. Universities are key players in business andindustry. They are central to supportingcompetitiveness and innovation, and make avaluable contribution to their regionaleconomies. The 2003 HE-Business InteractionSurvey29 (HE-BI) demonstrates a marked andwidespread improvement in the interactionbetween the higher education sector andbusiness. Some of the key findings show thatcompared with 1999/2000:

• institutions are prioritising local partnershipsand meeting regional skills needs with anincreased strategic planning for businesssupport, and greater reference to RegionalDevelopment Agency (RDA) priorities;

• the creation of 20 per cent more spin-outcompanies, with an increase of over 30 per centin spin-out companies which have survived overthree years;

• there is continuing growth in intellectualproperty (IP) activity30. HEIs have also broadenedtheir IP base, with increased attention given toindustrial design and trademark activity;

• there is a rise in all aspects of consultancyactivity with over 80 per cent providing inquiryservices for SMEs, and an increase of 25 per centin consultancy income; and

• the number of full-time equivalent (FTE) staffemployed in HEIs’ commercialisation and otherthird stream offices has risen from 1,268 to 1,529.

17. The Lambert Review of business-universitycollaboration has celebrated the success of thesector and has encouraged business to furtherengage with HE. The review has also stated that:

• research output from UK universities compareswell internationally;

• universities are playing a much more activerole in the regional and national economy;

• compared with HEIs in other Europeancountries, UK universities have made realprogress in their efforts to work with businessand also perform well in terms of high-qualityresearch;

• there is a correlation between businesssuccess and university collaboration: companieswhich use universities and other HEIs as asource of information or as a partner tend to besignificantly more successful than those that do not;

• universities are working much harder than theydid in the past to open their doors to outsidepartners; and

• the review also highlights the numerousexamples of research contracts, licence dealsand spin-out companies that had beenestablished by universities as a direct result ofgovernment investment.

18. Universities also engage at a regional levelthrough a wider range of activities, which impacton quality of life, social inclusion, societalinfrastructure and cultural enrichment. Many ofthese contributions are outlined in theUniversities UK publication The Regional Mission31

and the associated regional reports32. Below is asnapshot that highlights just a few examples outof the thousands of activities throughout the UK.

Social well being and healthHEIs are involved in local and sub-regional healthpartnerships where they provide research andconsultancy directly for their local community.For example the University of York manages theNorth Yorkshire health promotion service.Through this, the university is involved directly inprojects to improve nutrition, and the mentalhealth of young farmers in North Yorkshire.

29 Higher education-business interactionsurvey 2000-01: HEFCEpublication 2003/11,Higher EducationFunding Council forEngland, 2003.

30 The report shows an increase ofapproximately 25 percent in IP disclosures;an increase of morethan 20% in patentsgranted; a rise in thedevelopment of in-house licensingcapability by mediumand higher researchintensive institutions;and over 30% increasein licences to UKcompanies.

31 The RegionalMission: the regionalcontribution of highereducation, UniversitiesUK, 2001.

32 Reports werepublished on thefollowing Englishregions: EasternEngland, Yorkshire andthe Humber, The WestMidlands, The SouthEast, The North West,The North East and theSouth West.


PART2Lifelong learning and employabilityHEIs in the South West are leading thedevelopment of a regional drive to encourage theutilisation of graduates, particularly in regionalpriority economic sectors, to improve theproductivity of South West businesses. Thisincludes the joint provision of an on-lineemployment service for students, graduates andemployers in the South West enabling them totarget appropriate students and graduates fortheir vacancies. Similarly in Wales, many HEIsare involved in community initiatives. Forexample the Community University of the Valleys;the Community University of North Wales; andcommunity courses offered by Cardiff Universityor the University of Glamorgan.

Societal infrastructureThe Chapel Street Regeneration Strategy inSalford is a major undertaking focused on theeconomic, physical and social renewal of theBlackfriars Ward, one of Salford's most deprivedareas, which has significant social, economic andenvironmental problems. The implementationplan33 is managed by Salford City Council,Manchester TEC, the North West DevelopmentAgency and Salford University. The partnershipboard is chaired by the Vice-Chancellor of SalfordUniversity.

Cultural participationIn the North East, The Stage Gateshead Project,funded by HEFCE’s Restructuring andCollaboration fund, promotes development ofmusic activities in and across the region'suniversities in collaboration with The StageGateshead. In Leicester, De Montfort Universityand Leicester City Council jointly fund thePhoenix Theatre and arts centre. Similarly theUniversity of Luton works closely with the LutonMusic Service to build up close links with schoolsand the local community.

2.2.7 Wider benefits19. The wider non-economic benefits of HE play avital role in supporting the physical, social andcultural health of the nation. The UK tops thetables for the social rates of return for HE34 andas a study conducted by the Institute ofEducation35 on behalf of HEFCE shows, in the UKmany of the direct non-economic benefits tograduates are significant and have a knock-onimpact throughout the community.

20. In relation to employment, the reportdemonstrated that HE provides a direct protectionagainst the risk of adult unemployment andimproves social mobility, especially amongstthose from lower social economic backgrounds.Graduates also have an increased likelihood ofbeing multi-skilled, making them more in tunewith the modern economy. The report highlights astriking reduction amongst graduates ofdepression and reduced levels of obesity36. Withina broader context, these benefits mean thatgraduates are less likely to rely on social securityand will be less burdensome to the NationalHealth Service.

21. In terms of citizenship and values, the reportshows that HE increases racial tolerance andgraduates are more likely to be politically engagedand involved in charitable and voluntaryorganisations. HE educated parents have a higherrate of involvement in Parent Teacher Associationactivities, create a stronger family environment inthe home and are likely to do more reading withtheir children.

33 TheImplementation Plan(1998-2003) coversfour main themes:the livingenvironment,economicdevelopment, socialinclusion, and artsand culturaldevelopment.

34 OECD Education at a glance, OECDIndicators TableA14.4, Organisationfor EconomicCooperation andDevelopment.

35 HEFCE (2003)Revisiting the benefitsof higher education,Higher EducationFunding Council forEngland.

36 The report alsofinds thatparticipation in HEalso plays a part indiminishing thetendency to smoke.


Tackling inequality and promoting diversity22. Higher education institutions havedemonstrated a continually strengtheningcommitment to widening participation andensuring fair access. This is being achievedthrough a variety of different ways, reflecting thediversity of the sector. Universities are identifyingparticular groups of under-represented students,for example those from lower socio-economicbackgrounds and disabled students, and thosefacing multiple barriers relating to age, genderand ethnic origin, so as to anticipate and meettheir various needs. Universities have recognisedthat the 14-19 age group is key to achieving equityof access. To this end, considerable effort hasbeen made by institutions to raise the aspirationand achievement of pupils from non-traditionalbackgrounds and/or where studying at universityis not part of the family or community tradition,through successful collaboration with schools andthe further education sectors.

23. Our social class and participation researchshows that good practice in widening participationby young people from lower socio-economicgroups spans the spectrum of higher educationinstitutions across the UK and covers a range ofsubject areas, including high demand subjectssuch as law, medicine and the creative arts.Recent research by JM Consulting37 providesfurther examples of widening participationactivities including outreach programmes andinitiatives designed to improve retention andachievement, including those that are embeddedas part of an institution’s provision. The workrequired to increase the number of currentlyunder-represented groups is long-term, ascultural attitudes need to change across theeducation system.

24. HE contributes significantly to theGovernment’s agenda of social inclusion.Ensuring equality and diversity is a priority for theHE sector. Many universities are undertaking awide range of actions to improve equality ofopportunity for all students and HE staff, includingthe mainstreaming of equality and diversity withinall institutional policies, functions, processes andprocedures. In addition, universities are workinghard to achieve a cultural change in perception inorder to ensure that all students are guaranteededucational and career opportunities based on theability to make real choices.

25. Students are studying at a range of levels inmore diverse modes than ever before. There hasbeen great success in tackling inequalities inparticipation from women, mature students andcertain ethnic minority groups on full-time andpart-time courses. Tackling under-representationfrom lower socio-economic groups is still a majorchallenge for the whole education sector,particularly for schools. Genuine equality ofopportunity in education brings benefits to beshared by all; higher education will play its fullpart in ensuring that all those who are able tobenefit from university education are able to doso.

Universities and cultural enhancement26. Universities make an enormous contribution to the nation in cultural terms, providing a wholerange of cultural resources such as libraries,museums and galleries, cinemas, theatres andconcert halls, as well as hosting major culturalevents of national and international importance.

27. University libraries hold important collectionssuch as the Fawcett Library at LondonMetropolitan University, the Churchill Archives atChurchill College, Cambridge and the BritishLibrary of Political and Economic Science at LSE.University museums and galleries such as theWhitworth Gallery in Manchester, the SainsburyCentre for Visual Art in Norwich, the Hunterian inGlasgow and the Fitzwilliam in Cambridge areamongst the foremost in the country.

37 JM Consulting arecurrently undertakinga costing and pricingstudy for HEFCE,Universities UK andSCOP. The project isto develop a TRACequivalent model forthe additional costsinstitutions incurfrom the activitiesand servicescurrently provided forthe recruitment,retention and supportof non-traditionalstudents. The finalreport of thisresearch project willbe published in 2004.

38 A recent audit ofsports provision inhigher educationinstitutions inEngland carried outby Sport Englandwith support fromUniversity andCollege Sport(Directors of Sport at HEIs) andUniversities UK foundthat Englishinstitutions recordedan average of 263,250visits each to theirsports facilities peryear and communityusers are estimatedto form one-third ofthis total. Institutionsreported that theirfacilities were opento the community71% of the time thatthey are open. InScotland a similaraudit carried out bySport Scotland withthe ScottishUniversities PhysicalEducation Association(SUPEA) revealedthat HEIs in Scotlandalso receivesignificant numbersof visitors, theresearch reported66,310 visits perweek including bothstudents, staff andthe wider community.


PART228. University theatres and concert halls provideyear round programmes such as the Taliesin ArtsCentre at the University of Wales, Swansea, theNuffield Theatre at the University of Southamptonand the Arena Theatre at the University ofWolverhampton. The University of Huddersfield isa key partner in the Huddersfield ContemporaryMusic Festival, one of the leading festivals of itskind in Europe.

Sport29. HEIs make a significant contribution to societythrough sport. They provide a wide range ofsporting opportunities for their students, theirstaff and their communities38. Sports provision inhigher education institutions can also provideaccess routes into higher education for under-represented groups. The sports facilities andprogrammes provided by HEIs clearly links togovernment agendas on increasing participation in sport and improving the health of the UK’spopulation.

30. Community access to sports facilities isencouraged by all institutions with few restrictionsand many institutions have specific programmesin place to encourage children, older people,those with disabilities and people from ethnicminorities to participate in sport and fitnessactivities39. HEIs have developed partnerships witha wide range of organisations including localauthorities, sports governing bodies, local sportsclubs, area institutes of sport, schools and otherhigher or further education institutions. Thesepartnerships facilitated the use of equipment,facilities, sports science advice, teaching andprovision of awards and grants. Another key roleis the support provided by institutions for the UK’selite sports performers through access tofacilities, coaching, sports science support andscholarships or bursaries.

2.2.8 Attracting international students31. UK universities have major advantages in theglobal market for higher education. UK highereducation offers international students anextensive choice of courses at a wide range ofinstitutions. The UK’s reputation for high qualityteaching and research combined with theemergence of English as a universal languageputs the UK higher education sector in a strongposition to attract students from around theworld40.

32. International students help to broaden andinternationalise the curriculum and highereducation experience for all students.International students form 28 per cent of full-time research postgraduates, make a vitalcontribution to the UK’s research base andmaintain the viability of a number of key researchareas. Fee income from international students isimportant for HEIs but is also a significantcontributor to the UK economy41. Manyinternational students eventually occupyimportant positions in their home countrieswithin government, business, industry, educationand other spheres, as successful representativesof UK higher education.

33. The Prime Minister’s Initiative (PMI) hasrecently provided an important focus for thepromotion of UK higher education overseas,building on the successful international activitiesdeveloped by higher education institutions formany years. Launched in June 1999, it has aimedat promoting UK education internationally andincrease the number of international studentswho study in the UK. Funding was provided by theDfEE (now the DfES), a number of othergovernment departments and the BritishCouncil42. The PMI has had an impact asawareness of the UK higher education systemhas increased overseas and international studentnumbers have risen43.

39 In England theaudit found that two-thirds of institutionsoffer specificprogrammes aimedat their communities.In Scotland mostinstitutions offeredspecific programmesfor their communitieswith 10 institutionsoffering programmesfor older people and9 institutions offeringprogrammes forchildren.

40 Internationalstudents comprise7% of the totalstudent populationand 30% of full-timepostgraduates. Feeincome fromstudents outside the EU contributes over£875 million annually.

41 The impact ofhigher educationinstitutions on the UKeconomy, a reportfrom the University ofStrathclyde,Universities UK, May2002 stated thatinternationalstudents contributed£1.3 billion to the UKeconomy in1999/2000 excludingfees. Table on Page29.

42 In 2003/04 the PMIreceived £2.627m from governmentdepartments and theBritish Council.

43 RecentMORI/British Councilresearchdemonstrated thatthe Education UKbrand developed aspart of the PrimeMinister’s Initiativewas recognised by78% of respondents.In 2001/02 there were152,625 internationalstudents in highereducationinstitutions, anincrease of 31% from116,840 internationalstudents in 1997/98.


34. The PMI funding is due to end in 2005 andUniversities UK supports the British Council bidfor £5m per annum from 2005/06 to 2007/08 tosustain and develop further the internationalmarketing and promotion activities for UKeducation it supports. Funding is needed tosustain and update the marketing strategy for UKeducation and to support the increasing diversityof activities in an increasing range of countries.

35. Universities UK would wish to see long-termsustainable investment in the infrastructure ofinternational education promotion and acontinuation of the valuable partnership betweenhigher education institutions, the British Counciland government departments developed as partof the PMI. This will ensure that the advantagesthat the UK has gained in this area of activity arenot lost. The demand for international educationis buoyant but competitors are also investing intheir international education promotion and theUK needs to ensure that it does not miss out onthis growing market44.

36. On the European scene, the UK HE sector isleading efforts to shape the European HigherEducation Area (EHEA) by 2010. In 1999, whenthe Bologna Declaration was signed, the UK HEsector met most of the key objectives. Now thatthe Bologna Process has moved on considerablyto encompass new policy areas, the UK is stillleading on many of the new issues, for examplethe necessary components of national qualityassurance systems and key aspects ofqualification frameworks.

37. The Bologna Process also seeks to increasethe attractiveness of the European HigherEducation Area and a recent survey of EuropeanHEIs, revealed that 80 per cent of UK institutionsare engaged in targeted marketing forrecruitment compared with a continental averageof 30 per cent45. The UK is still ahead of the restof the EU in attracting both European andinternational students but cannot be complacent.Competition from other EU member statesoffering three year degree courses, often inEnglish, is increasing.

38. To continue to attract both international andEU students the UK needs to maintain itscompetitive edge in terms of infrastructure andteaching provision in order to maintain animportant and increasing source of funding forUK higher education.

44 Recent researchfrom Australia hasforecast that by 2025Australia will have over1 million internationalstudents studying eitherat institutions inAustralia or onAustralian highereducation programmesdelivered outsideAustralia. In its 2003Budget the AustralianGovernment announcedan investment of AUD$113m (approximately£50m) in internationaleducation promotion,for a smaller educationsector. In the US a TaskForce on InternationalStudent Access hasreported that the USneeds to develop astrategic plan topromote study in the US.

45 Trends 2003Progress towards theEuropean HigherEducation area.

46 Investing for successpp16-17.

47 House of CommonsEducation and SkillsCommittee The future ofhigher education: fifthreport of session 2002-03, Volume 1 Formaland formal minutes(HC425-1) p3.

48 Patterns of highereducation institutions inthe UK: Third report,Foreword by ProfessorSir David Watson.


PART2

49 Universities UK(December 2002)Response to DfESdiscussion paper onhigher education p2para 1.7, UniversitiesUK, London.

50 With some 40% oftotal HE incomeprovided by non-publicsources and a further15% from activitiescarried out for publicbodies on a contractualbasis. (Lewis, I.“Sustaining success:challenges andopportunities facinghigher education in the21st century”, inStandard & Poor’sPublic finance Highereducation changing bydegrees: universitycredit ratings pp 43-44).

51 Ramsden (Patternsof higher educationinstitutions in the UK:Third report pp 41-2,paras 139-142) showsthat this has beenachieved differentiallyacross the sectorbetween 1998/99 and2000/01, with themedian up £72k (11%)and the upper decile up£1500k (24%) while thelower decile remainedunchanged.

52 Internationalstudent enrolmentswere up by almost 39%between 1994/95 and2000/01. BrianRamsden Patterns ofhigher educationinstitutions in the UK:third report p9 Table3.

53 Craig Jamieson et alStandard & Poor’spublication p6.

54 Universities UK(April 2003) UniversitiesUK’s response to Thefuture of highereducation pp 44-46,Universities UK,London .

55 HESA Resources of HE Institutions2001/02, HigherEducation StatisticsAgency, Cheltenham.

56 Ibid.

2.3 UK cost pressures

39. In our 2002 Spending Review submission, weexpressed our concerns about the deterioratingfinancial position of the sector and drewattention to the findings of our Funding OptionsReview Group, particularly its powerfulassessment of the impact of years ofunderfunding on higher education teaching andlearning46. In its recent report, The future ofhigher education, the Education and Skills SelectCommittee for England commented that “Inrecent years, government investment in highereducation has lagged well behind the resourcesdevoted to early years, schools and furthereducation”47. Despite the substantial additionalfunding provided for the sector by this SpendingReview, much of which will not arrive until 2004-05, the financial security of the sector and ofinstitutions of all types within it, continues todecline48.

40. Our response to the DfES discussion paperon higher education argued that for universitiesto maintain their world-class status and deliverGovernment’s own objectives for the sector, theymust obtain substantial additional resourcesimmediately49. This is true for HEIs across thewhole of the UK and not just in England. Werecognise that public funds alone will not meetthe very substantial funding gap in UK highereducation.

41. Since the early 1980s, universities andcolleges have been raising income from non-public sources, and public grants now accountfor less then half of higher education income 50. Institutions are working to diversifytheir funding base and reduce their dependenceon public funding for teaching and researchactivities provided by the funding councils. Forexample, there has been a marked increase inthe income received from UK industry and commerce51. And the growth in internationalstudent numbers has significantly outstrippedthe growth in home students in recent years52.However, there is a limit to potential expansionas an over-reliance on international recruitmentcarries associated credit risks53. These includemore volatile student demand and exposure toeconomic downturns that could restrict studentsupply.

42. As noted in our response to the DfES WhitePaper The future of higher education, UniversitiesUK stands ready to work with Government topromote a “giving culture” amongst individualsand business across the UK54. However, weshould be realistic about how much growth isachievable, even in the medium to long term.There is no tradition of such giving in the UK andwe are starting from a very low base. Incomefrom this source currently stands at less thantwo per cent of total sector wide income55 andvaries considerably between institutions. Overallendowment and investment income across theUK currently stands at £258m. This has notgrown since 1999/2000 and the value ofendowment assets is decreasing (down by £304mor 11.3 per cent from 2001 to 2002), partlybecause of fluctuations in the stock market56.Most endowment income is tied to specificpurposes and cannot be used to pay coreoperating costs. For example, at King’s College,of a total endowment of £82m all but £1m is tiedin this way.


43. Against this background it is clear that privateinvestment and individual contributions towardstuition costs (in whatever form these are providedacross the various nations of the UK) will beinadequate to provide the additional resourcesHEIs require to address the very substantialhistoric underfunding needs of the whole sectorand place it on a sound financial footing for thefuture. This can only be achieved with enhancedand sustained public investment in ouruniversities.

44. A recent study of UK higher education byHSBC based on HESA data for 2000/01 shows thatthe overall financial position of HEIs continues todeteriorate: “Since 1997/98, total income hasgrown by about 16 per cent while total spendinghas risen by almost a fifth. In 2000/01, the sectorrecorded its first deficit, with expenditureexceeding income by some £50 million”. Staffcosts and estates costs have been rising steeplyas government support has declined, and in somecases the increases have been greater than therate of inflation57.

45. Staff costs are by far the most substantialitem of expenditure. With over 140,000 academicstaff in 2000/0158 and around 200,000 non-academic staff in 1999/200059 they account foralmost 60 per cent of total spending during 1997-2001. Staff costs have been increasing at 5% peryear and this has been a major factor in thedecline of university net surpluses60. Just overone-third of sector spending, £4.8 billion, is onoperating costs with a further five per cent (£614million) spent on maintaining the estate andequipment base61. In both these areas,institutions have sought to find efficiency gainsand fund academic and infrastructure develop-ment, such as by outsourcing non-core activities,academic restructuring and estate rationalisation“in an attempt to protect a break-even financialposition while maintaining the attractiveness ofacademic and campus offerings to students”62.

46. Operating margins have been put underpressure by this combination of decreasingincome and rising costs. Although HEIs areregulated so as to break even or generate smallsurpluses on a net basis, the advice of Standardand Poor’s is that “a small operating marginleaves little room for servicing external sources offunds, such as bank or capital market debt”63.Their analysis demonstrates clearly that thecurrent trend “towards a weaker financial profileis not sustainable for the sector in the long termwithout an adverse impact on both academic andcredit quality”64.

47. The HSBC study echoes the findings of theStandard and Poor’s analysis of the sector notingthat “a steady decline in the median value of mostfinancial ratios suggests that, despite a morestable approach to government funding, there hasbeen a further build-up in short term financialpressures”65. This study concludes: “The sector’sfinancial strength is concentrated among a smallnumber of institutions, while for the remainderthe general picture is one of a tough operatingenvironment. Moreover, the financial gap betweeninstitutions that are doing well and those that areless successful is gradually widening”66.

48. Rising insurance premiums, pension fundcontributions, increased National Insurancecontributions and compliance costs arising fromnew legislation are by no means unique to UKhigher education. But coupled with thedeteriorating financial position of the sector, theywill push increasing numbers of institutions intooperating in deficit in 2003/04 and beyond.

49. In terms of what the total impact of theseincreased operating costs mean for universitiesand colleges, the overall cost for meeting theincreased employers’ National Insurancecontribution alone added an additional £60 millionper annum to HE costs from April 200067. Asurvey of all HEIs by the British UniversitiesFinance Directors Group (BUFDG) revealed anoverall average increase in insurance premiumsbetween 2003/04 and 2002/03 of 14 per cent.

57 Taking the pulse:higher education, Issue2, HSBC, May 2003 p3.

58 Ibid.

59 University ofStrathclyde (May 2002)The impact of highereducation institutionson the UK economy: areport prepared forUniversities UK.

60 Higher educationchanging by degrees:university creditratings, CraigJamieson, RobertRobinson & AdeleArcher, Standard &Poor’s, p.6.

61Taking the pulsep3.

62Craig Jamieson p6.

63 Craig Jamieson p11.

64 Craig Jamieson p6.

65 Taking the pulsep6.

66 Ibid p8.

67 The highereducation pay andprices index (HEPPI)showed in July 2003 a10% increase in NIcontributions witheffect from April 2003.NI contributionsaccount for 5% of totalHE expenditure (£12billion).


PART250. Employer contributions to pension schemesare also rising. BUFDG recently conducted a UK-wide pension scheme survey of all universitiesand colleges. This demonstrated that averageemployer contribution rates across localgovernment pension schemes and other localschemes had risen by 12.5 per cent between2001/02 and 2002/03. These findings update asurvey of all UK HEIs by the Universities andColleges Employers Association (UCEA), whichshowed that most institutions anticipated anincrease in their contribution rates to supportstaff superannuation schemes from 2003/04, andthat these increases averaged 3.5 per cent68.

51. New legislation with which universities andcolleges must comply within this SpendingReview period will also impose a substantialfinancial burden in terms of the capitalinvestment needed to remove asbestos frombuildings and to comply with environmentaldirectives. A recent survey of all HEIs in the UKconducted by the Association of UniversityDirectors of Estates (AUDE) has calculated thatinstitutions have already spent £58 million onasbestos removal with a further £103 millioncommitted to this work. In addition, increasingcost pressures resulting from the following areasare expected during this Spending Review period:

• Sites over 20 megawatts are required to registerunder the Carbon Trading Scheme, and will besubject to carbon dioxide (CO2) emission controlsfrom 2005. This will affect a significant number ofHEIs.

• Several trade effluent consents will have animpact on universities and colleges. This area issubject to increasing control.

• UK building performance standards are likely tobe increased by EU legislation.

• Changes to fire regulations are expected toplace greater demands on building owners forself-regulation. These will have a significantresource implication for all HE institutions.

• Requirements for institutions to make Section106 payments as a condition of planningapprovals is becoming increasingly onerous andthe scale of payments is increasing.

• Special waste provision is an issue. Ongoingwork from the Landfill Regulations 2002 and therequirements of the Waste Electronic andElectrical Directive 2004, which demands adifferent treatment for the disposal of whitegoods, will be especially onerous. Thedecommissioning of radioactive sources is also an increasingly significant issue.

• Landfill tax has been rising. Any furtherincreases will far outstrip the rate of inflation.

• Measures to abate noise pollution, for examplefrom ventilation plants, are increasing.

• The Transport Agenda is increasingrequirements on universities for the provision of improved services and facilities, for examplecycle parks.

• Other changes required by building regulations,for example, for improved energy performance,will have a significant capital cost that is unlikelyto be met by subsequent energy efficiency savings.

52. It is quite proper that universities and collegesshould discharge their legal obligations in allthese areas. Nonetheless it is extremely difficultfor institutions to make provision for theadditional expenses legislative compliancerequires when their financial position continues todeteriorate.

53. The HE sector has suffered relatively highinflation compared with the economy as a whole.By July 2003 the retail price index (RPI) had risenby 81.3 per cent compared with its base date of 1January 1987 whereas the higher education payand prices index69 had risen by 103.5 per centover the same period. Some important elementsof HE expenditure have been rising at a fasterrate. For example in the last five years alone the‘Libraries’ component of the index has risen byover 31 per cent. University staff pay remainsrelatively low but annual settlements have noteven been matched by comparable percentageincreases in public funding.

54. The 2003 HEPPI survey showed significantincreases for several other categories of HEexpenditure. In particular, energy, water andsewerage charges had risen over the year as awhole, much higher than increases in the HEPPIand the RPI indices.

68 Unpublishedsurvey of institutionsby UCEA. Of the 131institutions thatresponded to thesurvey (82%), 88reported an increasein their contributionsto support staffsuperannuationschemes.

69 HEPPI (formerlythe universities payand prices index)produced by theLondon School ofEconomics on behalfof Universities UK.


55. A recent study commissioned by LondonHigher has evaluated the current location costmultipliers applied by HEFCE against thoserelated to labour costs that are applied by theLearning and Skills Council (LSC) and the Officeof the Deputy Prime Minister (ODPM)70. The studyconcludes that multipliers applied to teachingfunding in HE are substantially out of line withthe comparators in both the local governmentand the learning and skills sectors. If HEFCEwere to replace its current multipliers with thoseused by the LSC the additional cost is estimatedto be £100 million. Should the ODPM multipliersbe applied, the additional cost is estimated to be£163 million.

56. Further evidence of the severe financialconstraints affecting the universities wasdemonstrated by the 2001-02 TransparencyReview data on costs for research, teaching andother activities reported to institutions in May200371. These revealed that the gap between thefunds provided for publicly funded research andteaching and the costs attributable to theseactivities had grown year on year from the firstresults from the Transparency Review dataproduced for 1999-2000 and reported in our lastSpending Review submission72.

57. This is particularly worrying since under theterms of the new financial memorandum withinstitutions issued or announced by each of theHE funding councils, universities and collegeswill be required to operate on the basis ofTransparency principles. This means that at theaggregate level each institution’s activity inteaching, in research and in other externalactivities should cost in total no more to deliverthan the income provided from all sources todeliver it. Given that Government is the primaryfunder of teaching and learning and researchactivities in HEIs, without substantial additionalpublic investment it will be impossible forinstitutions to continue to deliver their currentrange of teaching and learning and researchactivities. The total capacity of the system will beunsustainable in the medium and long-termunless new funding models are devised basedupon the costs to institutions of deliveringappropriate, high quality provision rather thanthe price historically paid for them. We thereforewelcome and support HEFCE’s recentannouncements that in principle we should movetowards a system in England for funding teachingthat is informed by costs. We stand ready to workwith HEFCE to determine an appropriateevidence base.

58. The most recent financial forecasts forEnglish HEIs provided to HEFCE73 also reveal acontinued decline in the sector’s operatingposition over the last Spending Review period. Inour 2002 submission we commented on theworrying decline, and the latest figures continuethis trend. These figures take account of theadditional recurrent funding and the earmarkedfunds announced in the last Spending Review.Forecasts for Scotland and for Wales showsimilar trends.

70 FrontierEconomics Ltd (2003)Location costs in thehigher educationsector, LondonHigher.

71 Institutions wereinformed of theTransparency Reviewdata for the UK as awhole by theirrespective fundingcouncil. HEFCE’sletter to HEIs inEngland was issuedon 14 May 2003 asCircular letter11/2003.

72 Investing forsuccess: UniversitiesUK SR2002submission, para 44.

73 HEFCE report2003/02 Outcomes of2002-03 financialforecasts andoperating statements.

74 UCEA, HEFCE,SCOP, UUK (2001)Recruitment andRetention Survey.

75 Thursday 23January 2003. Speechmade by the PrimeMinister, Tony Blair,at the South CamdenCommunity CollegeLondon. “Fact:University lecturersand professors haveseen their pay riseone third as fast asthe rest of theworkforce in the past20 years, have nowfallen behind theirmain internationalcompetitors”; Friday4 July 2003. Speechentitled Our mission:to govern for long-term progress givenin Liverpool, quotedin Education Guardian(4 July 2003)“University Lecturersare paid poorly”.


PART22.4 UK-wide investment needs

2.4.1 Human resources59. Intellectual capacity is of prime importance tothe sector and is underpinned by universities’ keyresource its staff. Staff are the core element ofteaching and research activities, accounting for58 per cent of university expenditure. The UK’sfuture international reputation in universityteaching and research depends on the successfulrecruitment, retention, motivation andcontribution of high calibre staff. There are,however, a number of long-standing problemsrelating to pay and human resources inuniversities.

Recruitment and retention60. Recruitment and retention continues to be aproblem in the sector74. The attractiveness ofuniversity employment is in decline and itcontinues to be difficult to attract and retainacademics of the first rank in competition withposts offered by universities elsewhere in theEnglish-speaking world and, increasingly, inEurope. Indeed, on a number of occasions thePrime Minister has highlighted the lack ofcompetitiveness of academic pay75. Researchconducted for Universities UK suggests thatthere has been a significant increase over thelast five years in the numbers and proportions ofstaff leaving the UK HE sector in order to pursuecareers overseas76. If universities are to be ableto compete for the staff they need, someincreases in relative salary levels (targeted toareas of greatest need) is essential.

61. Continued competition from the privatesector and from elsewhere within the publicsector compounds both recruitment andretention problems. This includes IT andelectronics, the creative industries, professionalsubjects like law and accountancy, together withteacher education and training for the healthprofessions where Government has increased therewards offered in schools and the NHS. Thiscompetition not only limits the pool of applicantsopen to institutions when recruiting staff. It isalso leading to staff moving away from highereducation into the private sector and other areasof the public sector. Unless action is taken soonto remedy this problem the creation andmaintenance of a sustainable staff base, neededboth to train professionals for the future and tocontinue widening access to universities, is likelyto prove extremely difficult.

62. Recent research shows that this situation isexacerbated by an ageing academic population,which is mirrored in other English-speakingcountries77. The study, undertaken by ProfessorBrian Ramsden on behalf of Universities UK78,shows that the age profile of academic staff willlead to very large numbers of retirementscausing potentially serious problems for thefuture recruitment of high quality academic staff.The study also shows that those countries with aworse situation than the UK, particularly Canadaand the USA, are already taking pre-emptiveaction to deal with the problem79. As this actionwill reduce the available pool of high qualityacademic staff, the UK risks being left behind ina fiercely competitive international market for thebest talent if immediate investment is not madeavailable. Another major issue emerging fromthis report is the propensity of highly qualifiedgraduates, including PhD qualifiers, to seek workoutside the university sector, creating an“internal brain-drain”80.

76 Professor BrianRamsden (September2003) Some issuesconcerning theemployment ofacademic staff withinHE institutions,Universities UK,London.

77 Australia, Canada,the United Kingdomand the USA.

78 Professor BrianRamsden (August2003) An ageingpopulation: acomparative study ofuniversity academicstaff in the UnitedKingdom, Australia,Canada and the USA,Universities UK,London.

79 The findings of theRamsden work arealso reflected inTrends in HigherEducation,Association ofUniversities andColleges of Canada(AUCC), 2002.

80 This reportproposes that the“internal brain drain”may be increasinglysignificant. Highlyqualified graduates,including PhDqualifiers, will seekwork outside theuniversity sector withthe PhD being nolonger simply atraining ground foruniversity academicstaff.


Pay modernisation63. Universities are making remarkable progressin addressing issues that in the past have limitedthe ways in which institutions can deal with someof the long-standing pay problems, and respondeffectively to the employment market.Underpinning this reform is the modernisation ofpay structures. In the long term this will lead togreater flexibility and cost-effectiveness;however, significant up-front investment isneeded to deliver change.

64. Two years of negotiations between union andemployer representatives nationally haveculminated in a new Framework Agreement forpay modernisation that will tackle low pay andequal pay issues, help deal with recruitmentproblems and provide better rewards for thecontribution staff make. This directly addressesissues raised in the Dearing and Bett reports,which identified outdated pay structures as amajor obstacle to achieving equal pay for work ofequal value. Subject to final ratification by theunions, pay modernisation in HE (linked to a two-year pay deal from August 2003) will:

• remove obstacles that get in the way ofachieving equal pay for work of equal value; thatcreate barriers between pre- and post-92 HEinstitutions and between academic and supportstaff; and that foster outmoded occupationalsilos;

• retain a national framework for HE pay, butwith flexibility for universities and colleges toadopt a model pay structure or variations to that,in the light of their particular needs andcircumstances;

• provide a sound basis for HEIs to differentiatethe pay levels offered to staff to reward theirvarying levels of contribution (on the basis of newor extended performance managementarrangements) and to recruit and retain staff infields where market pay levels are higher;

• address widespread problems in recruiting andretaining manual and other low paid staff;

• ensure delivery of equal pay for work of equalvalue through adoption of pay structures rootedin institution-wide job evaluation and withcommon grading across staff groups;

• facilitate emergence of new roles and careerpathways, recognising new ways of deliveringand supporting teaching and learning;

• secure union cooperation with the introductionof new pay structures, at manageable cost; and

• provide a stable and financially predictablebasis for planning the introduction of new payarrangements over a two-year period.

65. The Framework Agreement provides a soundplatform on which to build for future years andUCEA, Universities UK and SCOP are committedto making this a positive and successful change.This will require additional funding so thatuniversities can make effective use of the newflexibilities which the Framework offers.Significant improvements in pay levels for somestaff will be needed to reflect market pressures,tackle the continuing recruitment and retentiondifficulties and reward those who contributemost. Work conducted by Nigel BrownAssociates81 for Universities UK shows that thereare significant costs attached to delivering thischange across the UK. This investment isessential if pay modernisation is to be a successand the sector is to gain from the long-termbenefits it promises. The level of investmentneeds for pay modernisation for England,Northern Ireland, Scotland and Wales areoutlined in each of the individual countrysubmissions.

81 Universities UK(2003), The costs ofpay modernisation,Nigel BrownAssociates(unpublished report)


PART22.4.2 Physical resourcesTeaching infrastructure66. Teaching infrastructure is vital to the successof the UK HE sector, enhancing the quality,experience and employability of graduates aswell as contributing significantly to theinfrastructure of the regions in which universitiesare situated. In our SR2002 submission we madea clear case, based on the findings of anindependent report by JM Consulting82, forsubstantial capital investment in the UK teachinginfrastructure of £5.3 billion.

67. Under the last Spending Reviewinfrastructure funds were made available tosupport the proposals in the Roberts Review83

to tackle the backlog in equipment andrefurbishment of university teachinglaboratories. However, whilst this investment iswarmly welcomed, it is only targeted at scienceand engineering. Significant investment is stillneeded to support the broader teachinginfrastructure including the arts, humanities andsocial sciences. The level of capital and recurrentinvestment need for England and NorthernIreland, Scotland and Wales is outlined in theindividual submissions attached to this overview.Below is a summary of the categories ofinvestment needs across the UK.

Investment need68. Investment is required to address historicmaintenance backlogs and allow for themodernisation and upgrading of the buildingsand equipment across UK HE. It is essential if theteaching infrastructure is to be fit for purposeand suitable for contemporary teaching andlearning provision. There is also a need to caterfor a more diverse student body, and toaccommodate the increased numbers of HEstudents the Government is targeting. Withoutsignificantly addressing these remedialinvestment needs we cannot hope to safeguardstandards, maintain the quality of students’learning experience or meet the targets foreducation, economic performance and socialinclusiveness.

69. The JM Consulting report highlights three keyareas where additional remedial investment isrequired in the teaching infrastructure.

Buildings and space70. We need to repair, upgrade and, in manycases, replace buildings that have exceeded theirlife expectancy, or are no longer suitable forcontemporary teaching and learning provision.Many, especially those that formed the post-warexpansion, are at the end of their design life84. Inaddition older buildings that were designed for adifferent era now need to be re-adapted to allowfor contemporary teaching and learning, and amore flexible and effective use of the HE estate.This includes meeting the requirements of healthand safety and disability legislation.

71. The impact of rapid expansion in studentnumbers in the late 1980s and early 1990s, stillcontinuing today, has not been matched by anequivalent expansion in the size of the estate.These problems have been compounded by aserious problem of maintenance backlogs causedby historic under-investment. The 37 per cent85

decrease in the unit of funding for teaching since1989 has necessitated major efficiency savings.With multiple objectives and priorities andlimited resources, deferring investment in the HEestate has become a short-term source for cashsaving.

82 HEFCE, SCOP,UUK (2002) Teachingand learninginfrastructure inhigher education.

83 SET for success:The supply of peoplewith science,technology,engineering andmathematics skills,report of Sir GarethRoberts’ Review(April 2002).

84 EstatesManagementStatistics (EMS) datafor 2000/01 suggeststhat approx. 33% ofbuildings in Englandare operational butneed major repair orreplacement within 3years. 2001-02Estates ManagementStatistics, HEFCE(2002), 2002/53.

85 See section 2.3 onUK cost pressures.


Learning resources72. Information and learning resources, withadequate space and access, are vital to studentlearning. Increasing student numbers are placinggreater strains on existing library provision, bothin terms of buildings and learning resourcesmaterial. With an increasing focus on resourcebased learning and changes in methods ofteaching and learning, the role of libraries ischanging. There is a significant need to upgradebuildings and facilities to support a muchbroader range of student learning experiences.The traditional library is now heavily dependenton electronic means of access to information andfor archive and general storage, which adds tothese pressures.

Information and communication technology (ICT)73. ICT is now a mainstream part of the HEinfrastructure and there are significantchallenges involved in keeping this up-to-date.ICT infrastructure (both software and hardware)is a short-term asset requiring renewal orupgrading on a regular basis86. The speed ofdevelopment means that comprehensive andongoing IT replacement schemes are neededevery three years if we are to offer our studentsthe opportunity to learn on up-to-date hardwareand software which are the current industrynorms. Distance and e-learning require facilitiesthat are able to meet the needs of industry andlearners, and the academic staff that supportthem. As inter-sector collaboration increasesthere is also a demand for high-speed, reliableaccess to the JANET network for FE colleges.There is a general perception that this is costsaving technology, however, many of the cost areongoing and those cost savings that can be madehave already been achieved.

A well-found teaching environment74. To ensure that institutions are able to meetthe requirements of a well-found laboratory, oradvanced teaching87, the JM Consulting reportindicates additional areas of investment. Theseinclude teaching classroom equipment andteaching laboratory equipment. The reportestimates that the investment gap stands at £600million for the UK88. Increased expectations fromstudents, parents and employers, as well asgreater accountability and quality assuranceprocesses, add to the investment pressures inthis area.

The benefits of additional investment75. The additional investment that we areseeking will allow institutions to:

• maintain, repair, replace and upgrade theircapital infrastructure. This will ensuremodernised, safe and accessible buildings withfacilities and equipment that are fit for purposeand meet the needs of a larger and moreheterogeneous student body;

• facilitate increased efficiency and flexibility ofthe HE estate. The JM Consulting reportrecommends that increased strategic focus onestates management needs to be combined witha more supportive funding climate to allow thesector to develop effective strategies that canmaximise resources and maintain quality andstandards;

• exploit new communications and informationtechnologies, ensure adequate facilities andequipment, and achieve “state of the art”provision where possible. This would mean well-resourced libraries that ensure the quality ofstudents’ learning experience, enabling UK HE tobe at the leading edge of information systemsand exploit new educational technologies to thefull;

86 For example, withincreased use ofvideo streaming,demands on networkcapability continue torise.

87 The WFLrequirement relatesto equipment andenvironments forteaching, in additionto space andservices. Theadvancedrequirement relatesto the need forinvestment inprojects that at anational level enableUK institutions tostay at the leadingedge ofdevelopments.

88 £0.5 billion for thewell found classroomand £0.1 billion foradvanced projects.


PART2 • provide increased capacity in HEIs to expand

the numbers of students participating in HE. Thiswill enable institutions to maintain the highquality of teaching and learning support whileexpanding student numbers and improvingretention. This includes attracting and engaginga wider range of students from groups without atradition of participating in HE and allowing UKHE to compete successfully with HE in othercountries;

• comply with new legislation, particularly onhealth and safety and disabled access, allowinginstitutions to improve physical and remoteaccess for disabled students and staff andcomply with new legislation;

• enhance the employability of graduates andmeet the needs of employers. Additionalinvestment will improve and extend professionaleducation and lifelong learning, in particular forthe public services, to help meet theGovernment’s aim to improve these services; and

• benefit UK research. As the Robert’s review89

has indicated, undergraduate education is thespringboard from which science and engineeringgraduates enter employment or continue theirstudies through postgraduate courses. A properlyfunded up-to-date teaching infrastructure willattract more PhD students, and provide thequalified researchers needed in business andpublic services.

Research infrastructure76. Additional investment in researchinfrastructure is essential if we are to sustainworld-class university research and strengthenknowledge transfer capability. In our SR2002submission, we made a strong case for additionalcapital investment of £3.54 billion in the researchinfrastructure for the UK, based on independentevidence90.

77. We welcome the additional investment inresearch, with an uplift for the Science ResearchInfrastructure Fund, announced as part of theSR2002. We also welcome additional researchinfrastructure funds provided over previousSpending Reviews and by the Wellcome Trust.However, the problem has not yet been solved.We need sustained investment in research toensure that investment backlogs are addressedand the infrastructure is adequately maintainedto support the UK’s internationally competitiveposition. The sciences have done relatively well,but the investment needs of the arts andhumanities, vital to the success of the rapidlygrowing creative industries sector, have not yetbeen addressed.

78. In our SR2002 submission we also made thecase for recurrent research funding to provide forongoing replacement and renewal to avoidsimilar problems occurring in the future. It isalso necessary to provide resources to attractand retain high quality research staff and tosupport the improved quality and quantity of UKuniversities' RAE 2001 outcomes91.

79. The level of capital and recurrent investmentneeded for infrastructure in England, NorthernIreland, Scotland and Wales is presented in theindividual submissions attached to this overview.Below is an outline of the categories ofinvestment need across the UK.

89 Set for success:the supply of peoplewith science,technology,engineering andmathematics skill,the report of SirGareth Roberts’Review, April 2002.

90 OST (2002) Studyof science researchinfrastructure, Studyby JM Consulting forOST.

91 Higher Educationand ResearchOpportunities in theUK (HERO), RAE, 4/01(September 2001).


Investment need80. Public expenditure on research anddevelopment in the UK declined in real terms by21 per cent between 1986-87 and 1998-99.Increases since then still leave funding seven percent lower in 2001-02 than in 1986-87. In 2000, inthe United Kingdom, expenditure on R&D was 1.8per cent of GDP, considerably lower than the G7average of 2.1 per cent. In terms of the relativefunding of research and development by publicand private sectors the UK government makes asmaller contribution (29 per cent in 1999) thanany of the other G7 countries except Japan andthe US92.

81. UK universities continue to deliver highquality research and excellent value for money,despite their publicly and non-publicly fundedresearch activity operating at a deficit, asrevealed by the Transparency Review. Thissituation is not sustainable even in the shortterm. The Transparency Review has providedrobust data that demonstrates and documentsthe existence and extent of the underfunding ofresearch93.

82. Most recently the outcomes of the JMConsulting study have evidenced the continuingneed for substantial capital investment inresearch infrastructure. This is specifically toaddress remedial investment backlogs caused bypast under-investment and what is required tomaintain a well-defined and existing level ofresearch across whole science base94. In additionJM Consulting have proposed that £0.5 billion isrequired for remedial investment in the researchinfrastructure for the arts and humanities95.

83. The JM Consulting report categorisesinvestment need in the following key areas.

Buildings and space84. Many of the buildings used for research arereaching the end of their design life and faceconsiderable pressures from a rapid growth inresearch volume and advances in science andtechnological development. Investment in thisarea is essential if institutions are to provideprofessional facilities that can compete andattract the best researchers/academics andstudents. There are significant maintenancebacklogs across the whole sector. Pastinvestment in the research infrastructure hasbeen enough to stand still, though not to addressbacklogs or meet new demands such aslegislative requirements relating to health andsafety and disabled access.

85. Regardless of the quality of the researchers,substandard accommodation is a disincentive toprivate investment in UK universities.Furthermore, poor quality research facilities tendto be disproportionately expensive to operate inestates/facilities management terms. They are,in effect, non-sustainable. A well run, wellequipped, modern, energy efficient researchfacility will be cheaper to operate and issignificantly more likely to compete in theinternational market and obtain funding fromexternal investors. There is in addition a need toinvest in the mechanical and electrical plant,which includes power, heating, cooling, and airtreatment and infection control. This is oftenknown as the “hidden infrastructure”, though isfundamental to supporting research capacity.

92 Source: OST SETStatistics 2003.

93 Institutions wereinformed of theTransparency Reviewdata for the UK as awhole by theirrespective fundingcouncil. HEFCE’sletter to HEIs inEngland was issuedon 14 May 2003 asCircular letter11/2003.

94 The JM Consultingreport allocates a60:40 ratio betweenteaching andresearch.

95 HEFCE (2002)Arts and humanitiesresearchinfrastructure: reportby JM Consulting toHEFCE.


PART2ICT and research support86. IT networks and equipment are critical forthe efficiency and productivity of UK science.Research departments also need access torapidly increasing electronic resources andspecific applications with appropriate storage,processing capabilities, and bandwidth to supportthis. There is a need to meet e-sciencecapabilities and the challenges of an increasedglobalisation of the research process. Anexpansion of research techniques, such ascomputer based modelling, has created anintensive IT demand in areas such as particlephysics, astronomy, environmental surveys,meteorology, genome research and socialeconomics. Social sciences also need support forlarge statistical and mathematical data sets, andin the arts and humanities, digital libraries, withaccess to media archives and video streaming.

Well-found laboratory87. An adequate supply of high quality equipmentas part of the well-found laboratory is essential ifthe full potential of research is to be realised.The JM Consulting report shows that a numberof research departments across the sector faceconsiderable problems in maintaining this levelof provision, severely reducing research capacity.

88. Maintaining a well-found laboratory is asignificant problem in many parts of the HEsector. Research equipment and support isincreasingly capital intensive and leading edge ITand laboratory equipment can go out of date veryquickly. Maintaining an appropriate renewalprogramme can be extremely difficult. The sectorhas made good use of extending the life ofequipment beyond that originally planned byoverhauling, but this will not be generally atoptimum efficiency. Joint Infrastructure Fund(JIF) and Science Research Infrastructure Fund(SRIF) funding has helped; though much of thishas been used to develop new research capacity,rather than remedy the under-investment in theexisting infrastructure. In addition there are partsof the sector untouched by these96 and manyinstitutions find it hard to generate the recurrentinvestment needed to support this investment.

89. The JM Consulting report concludes that theremedial investment need in the this area is inthe order of £500 million. Science is not aboutstanding still and on top of this are the advancedinfrastructure needs required to maintain leadingedge capability. The JM Consulting report putsthis investment need at £1billion.

96 JIF and SRIF willimpact broadly ononly 15%.


Benefits of additional investment90. The additional investment in researchinfrastructure funding will ensure that:

•the historical infrastructure funding gap is metand does not recur. Investment will allowbuildings to be repaired, maintained or replaced;facilitate enhanced efficiency and flexibility of theresearch infrastructure; and the creation of amore a sustainable cost effective research base,reducing the likelihood of further expensiveremedial programmes of public investment;

• the level of investment, both capital andrecurrent, is sufficient to maintain a globallycompetitive position for UK university research.Investment will enable the Government to narrowthe gap with other countries in level of researchfunding, R&D activity and competitiveness andallow UK universities to attract the best researchstudents and staff from around the world; and

• universities maintain their strong record inresearch and commercialisation and underpinfurther economic development in the UK.Investment will strengthen the flow of knowledgeand technology to the marketplace and ensurethat university research will benefit individualsand the economy through transformation intonew processes and products. It will ensure thatuniversities increase their links with business,business support agencies and regional bodiesincluding the Regional Development Agencies.This will enhance the UK’s continuingdevelopment as a knowledge economy andimprove the ability of the UK to compete forinward investment and gain a share of theincreasingly mobile and global R&D market.

Sustainable investment91. There have been many positive aspects of thevarious capital investment schemes introducedsince 199897. However, overall funding forteaching has been less generous than forresearch. For future sustainable capitalprogrammes to be successful the formula usedfor allocation and the split between teaching andresearch are crucial. Institutions should be giventhe opportunity for strategic development.Institutions’ capacity to reshape their operationsand activities in line with the changing needs oftheir customers (individuals, industry, commerceand government) is vital. Institutions are makingconsiderable progress to enhance managementand strategic capacity in this area. This must notbe restricted by a return to the short-term, highlyspecific earmarked funding regime of recentyears, coupled with the very wide year-on-yearfluctuations to institutions’ recurrent grantallocations that work against effective planningand the optimum use of public funds.

97 Regular, albeitdistinct and timelimited, capitalprogrammes such asSRIF and JIF havehelped address someof the under-investment in the HEinfrastructure.


PART2Infrastructure management92. Universities have managed exceptionally wellin difficult circumstances. Whilst in the pastthere have been valid criticisms of universities’estates and space management these must beunderstood within the context of a number oflegitimate constraints and external challenges98.

93. Despite these constraints institutions havedeveloped estates strategies linked to widercorporate plans and other institutional planssuch as finance strategies in order to facilitatespace management and allocation procedures.Estates professionals99 have embraced thesechallenges. Improved space management is akey aim, and space management practices andprocedures have been supported by goodpractice publications developed by both theNational Audit Office (NAO) and HEFCE. RecentlyHEFCE has developed a new space initiative100

and the Commission for Built Environment,HEFCE and the Association of UniversitiesDirectors of Estates (AUDE) are currentlyconducting a joint study into the added value ofquality building in HE.

94. The development of Estates ManagementStatistics (EMS) means that there is now agreater focus within the sector on producingmanagement information that can enhanceestate management performance. Years one andtwo have been extremely successful and EMShave just reported to UK institutions for the thirdyear. Several HEIs have used EMS results tomake direct changes to strategy and implementbetter practice101.

98 This has includeda bulge of 1960s and1970s buildingsreaching the end oftheir design life;unpredictableincentives that haveoften rewarded thosewith poor estates;marginal funding ofmuch of the growthin teaching over thelast decade; and arapid escalation inthe cost of newtechnologies.

99 University estatefunctions arerepresented by theAssociation ofUniversity Directorsof Estates (AUDE)comprised from 22professional bodiesincluding 28members of theRoyal Institution ofChartered Surveyorsand 17 members ofthe British Instituteof FacilitiesManagement but alsoincluding membersof the RIBA, RTPI andCIBSE among others.

100 HEFCE SpaceManagement Study.

101 A recent reportpublished by heHigher EducationFacilities ManagersForum, BeyondFigures: SharingLessons Learnt.Exploring Institutions’shows that EMSstatistics are beingused to: supportbudget plans;business planning;space reports;benchmarking bothwithin and outsidethe sector; costforecasts for newbuildings;performance reviewof estates strategy;and universitystrategic planning.

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vision - Universities UK · Part 2: Argument and Evidence: higher education in the UK 2.1 Introduction 2.2 Success of UK universities 2.2.1 Contributing to economic growth 2.2.2 An