Investment in education is key to reducing the deficit

This article first appeared in the New Statesman on 20th October 2010: http://www.newstatesman.com/blogs/the-staggers/2010/10/higher-education-government

By Sally Hunt, General Sec of UCU and Michael Burke

One of the strangest claims in the current debate on education is that raising student fees will enable British universities to compete internationally. If we take just the "elite" universities, this is already happening -- four out of the world's top 20 universities are British.

As ever, the devil is in the detail. If you sift closely through the Browne review, you will see that he recommends that no extra resources are made available for higher education, with the increase in fees designed to replace the withdrawal of funds from central government.

If the government follows Browne's advice, the chronic underfunding of higher education will deepen and Britain will fall further behind our economic competitors. In the space of eight years, the UK has gone from having the third highest graduation rate among industrialised countries to languishing in 15th place, according to the latest OECD survey.

This irrational approach mirrors the economic debate, which has become dominated by the Budget deficit. However, the deficit is a symptom of the current economic crisis, not its cause. And cutting spending will depress activity further, which will depress tax revenues and lead to deficit widening.

Education can and must be allowed to play a leading role in any revival. However, for that to happen, the government needs to follow the advice of the OECD, which recently recommended increasing investment in higher education to create jobs and raise tax revenues.

Annual spending on higher education in Britain is £23bn, for which the Treasury gets back an estimated return of £60bn. This arises from a variety sources including jobs, exports, innovation, royalties and so on. There is also a long-term economic benefit, which is slightly harder to measure, that comes from a more highly educated and productive population.

That £60bn is a return on investment and highlights the madness of cutting spending on higher education. Spending cuts will lose jobs, exports and innovation.

The cuts are all made in the name of being fiscally responsible, getting the deficit under control and not living beyond our means -- the economic saws of Thatcherism. But not only will the economy suffer as a result of education cuts, government finances will actually deteriorate as result.

This arises from two effects. First, taxes will fall as a result of a weaker economy. Second, spending will end up higher as the government is forced to shell out millions in welfare payments to those denied education places and made redundant from university jobs, including teachers and clerical, cleaning and catering staff.

If we look closely, the government's economics simply do not add up. A £1bn cut in spending on higher education leads to £2.6bn in decreased activity. This decrease in activity leads to both lower tax revenues and higher government spending, as mentioned above.

The same process also operates in reverse -- an increase of investment in higher education will produce a positive net return to government finances through increased activity and the higher tax revenues and lower welfare payments that flow from it. Every £1bn increase in investment in this sector would produce a positive return to government finances, which could be used either to reduce the deficit or to fund further much needed investment, for an even greater return.

Sally Hunt is general secretary of the University and College Union and Michael Burke is a former Senior International Economist for Citibank London.