Losing out - how UK higher education is losing vital investment

Summary

Latest OECD figures show that the UK is falling behind competitor nations in its spending on higher education. Analysis by the Association of University Teachers provides strong evidence for a link between high levels of investment in higher education on one hand, and prosperity and economic competitiveness on the other. As the final decisions are made about the government's public spending plans for 2001-2004, we repeat our warning to the Chancellor: if you continue to cut funding for higher education, you will damage the economy of the UK, and miss out on a good return for your money.

1 Expenditure per student

Expenditure per full-time equivalent student in higher education in 1997 in the UK was $8,169, according to latest data published by the OECD (see Table 1, Col 1). This was less than half the amount spent per student in the highest-spending countries: the United States and Switzerland. UK expenditure was one-third lower than the OECD total, and 5% lower than the OECD country mean. The UK was ranked 12th out of 27 OECD member states. In 1992, the UK was ranked 4th.

While expenditure per student in cash terms in 1992-97 increased in the OECD as a whole by 9%, it fell in the UK by 21% (see Table 1, Col 2), largely due to increased student enrolment. The only other OECD countries recording a cut were Turkey (11%), Finland (17%) and Hungary (44%).

2 Proportion of GDP spent on higher education

In 1997 the proportion of GDP spent on higher education ranged from 0.7% (Iceland) to 2.7% (United States) (see Table 1, Col 3). The OECD country mean was 1.3% and the OECD weighted mean was 1.7%. In the UK the proportion of GDP spent on higher education was 1.0% ­ ranked 19th in the OECD. In 1992, the UK spent 1.1% of GDP on higher education.

3 Participation in higher education

The OECD country mean for the proportion of 17-34 year olds enrolled in university and non-university tertiary education in 1996 was 11.2% (see Table 1, Col 4). The UK, with 9.4% of that age group enrolled, was ranked 19th.

Table 1 Higher education and the economy (ranked by 1)

Notes

Col 1: Expenditure is for full-time equivalent enrolment in higher education, 1997, in US$. Centre for Educational Research and Innovation (2000), Education at a Glance: OECD Indicators, Paris: OECD, Table B4.1, Col 7.
Col 2: Calculation by AUT based on the change in spending per student between 1992 and 1997, using Col 1, and Col 1, Table F03(5) in Centre for Educational Research and Innovation (1995), Education at a Glance: OECD Indicators, Paris: OECD (1992 data for public institutions, except: public and private institutions (USA, Japan, France) and public and government-dependent private institutions (UK, Belgium)).
Col 3: Total expenditure from both public and private sources for educational institutions (includes teaching and research, but excludes maintenance grants and student loans) as percentage of GDP (1997): Centre for Educational Research and Innovation (2000), Education at a Glance: OECD Indicators, Paris: OECD, Table B1.1c, col 4.
Col 4: Net enrolment in public and private tertiary education for persons aged 17-34 in 1996: Centre for Educational Research and Innovation (1998), Education at a Glance: OECD Indicators, Paris: OECD, Table C3.3, col 3.
Col 5: GDP per capita, calendar year 1997: Centre for Educational Research and Innovation (2000), Education at a Glance: OECD Indicators, Paris: OECD, Table X2.1, col 2.
Col 6: IMD: World Competitiveness Scoreboard 2000. Published on the IMD's website at www.imd.ch/wcy

4 Our main competitors

It is particularly worth noting from Table 2 the patterns of expenditure per higher education student over the period 1992-97 in the UK, the United States, Japan, France and Germany. While our main competitors have consistently increased cash spending on higher education, spending in the UK has gone the other way.

Table 2 HE spending of UK's main competitors (ranked)

5 Higher education, national wealth and economic competitiveness

There are significant correlations or links between expenditure on higher education and national wealth in terms of per capita GDP. There are also significant correlations between HE spending and economic competitiveness, as measured by the Swiss-based International Institute for Management Development.

Table 3 shows very strong (significant) positive correlations between spending per FTE student in 1997, and GDP per capita and the IMD international competitiveness score for 2000. There were also strong positive correlations between the IMD score and the proportion of GDP spent on HE, and the percentage of students in the population.

Table 3 Correlations 1997

* correlation is significant at the 0.05 level
** correlation is significant at the 0.01 level

Table 4 investigates the possibility of a link through time between investment in higher education and the economy. The two measures of expenditure for 1992 correlated positively with per capita income in 1997 and the IMD competitiveness score for 2000. The measure of the proportion of students in the population in 1992 also correlated positively with per capita income in 1997 and economic competitiveness.

Table 4 Correlations 1992-97

* correlation is significant at the 0.05 level
** correlation is significant at the 0.01 level

6 Conclusion

While the correlations between higher education expenditure and participation on the one hand, and the economy on the other hand, do not 'prove' a cause and effect relationship between investment in higher education and a benefit to the economy, they provide strong evidence that the two are linked. The most likely hypothesis is that, on the basis of the data in Table 4, investment in higher education sows the seed of future economic benefit. It is therefore a matter of concern that the funding of higher education in the UK not only lags behind most of the OECD countries, but has been the most severely cut of all bar two of the OECD members.

The government is planning to continue a 1% cut in the real terms unit of resource - or funding - per student in higher education in the UK until 2001-02. The association has argued that the UK cannot afford a continued cut in the unit of resource. On the basis of the evidence presented in this report, the AUT calls on the Chancellor to provide sufficient funding for higher education in the period of the second Comprehensive Spending Review to enable the unit of resource per student to keep pace with inflation.

The association strongly believes that such additional expenditure would be in line with the government's golden rule on borrowing only to invest. The correlation between high levels of expenditure in higher education on the one hand, and high per capita GDP and greater economic competitiveness on the other hand, provide evidence of the value of investing in higher education. This is borne out by studies of the social rate of return on investment in higher education: a report by the Department for Education and Employment for the Dearing committee said the average rate of return to society for its investment in higher education was 7-9%. To repeat: the UK cannot afford a continued cut in the unit of resource, particularly when investing in higher education provides such value for money.

AUT research
June 2000