A new HEPI report How much is too much? Cross-subsidies from teaching to research in British universities (HEPI Report 100) by Vicky Olive considers the scale and sustainability of university cross-subsidies and calls on Philip Hammond to boost research and development funding in the Budget.

The report finds:

  • a research deficit of £3.3 billion – 37% of research income
  • a surplus from fees of £1.3 billion (28% of non-publicly-funded teaching income)
  • the surplus from teaching funds 13% of UK university research (around £1 in £7)
  • each international student contributes (on average) £8,000 to British research
  • unless research funding increases, the UK’s regional capacity will suffer badly
  • the Conservatives’ target of spending 3% of GDP on R&D needs £24.8 billion more

The paper ends with three policy recommendations:

  • an increase of £1 billion in research spending in this year’s Budget
  • setting aside some of the extra public support for university / charity collaborations
  • new roadmap for meeting the Government’s commitments on R&D spending

Vicky Olive, the author of the report and an Economics postgraduate student at the University of Oxford, said:

The cross-subsidies from teaching to research are a float keeping UK universities world-class, but they are under threat like never before. The Government has frozen fees for home students, students are demanding to know more about where their money goes and international student numbers are perpetually under threat.

There is nothing morally wrong with cross-subsidising research from teaching, particularly if students see the benefits in their lectures and seminars. But it is right to investigate the scale of the subsidies and where they go, so that we can debate whether they are defensible, sustainable and valuable.

I started this project with no hidden agenda. I have ended it with a firm conviction that we need a much bigger research budget. This means more public funding, more private funding and a clear strategy for getting there.

Nick Hillman, Director of HEPI, said:

Universities are enormous institutions. Some turnover £1 billion a year. So cross-subsidies are inevitable, even desirable. In particular, there is a cross-subsidy from international students to research, amounting to £8,000 per student. This helps explain why the UK is, on some measures, the top-performing research nation in the world. Anyone who wants to end cross-subsidies must say how they would fund universities’ various roles properly.

There are three pressing issues. First, those who fund university research – public and private funders as well as charities – do not cover anything like the full costs. Secondly, the cross-subsidy from tuition fees to research is probably not sustainable at current levels. Thirdly, the Government wants a near doubling in research and development spending as a share of GDP, yet recent funding injections are only enough to stand still.

Our conclusion is that the Chancellor needs to find another £1 billion for research in this year’s Budget, with some set aside for the work universities do with charities. But even this level of additional funding would mean stagnation relative to other countries. So we also need a strategy for increasing research spending to OECD levels over the next few years and German levels thereafter – as promised in the 2017 Conservative manifesto.

In a Foreword to the report, David Coombe, Director of the Association of Research Managers and Administrators (ARMA) and Director of Research at the LSE, writes:

It is my hope this report will act as a catalyst in bringing together all the key parties to map out a more sustainable funding framework for the future. The quality of UK research is second (almost) to none; it makes a significant contribution to the future of humanity and our planet, to growth and productivity, to quality of life and wellbeing and it makes a significant contribution to the careers of academics and the reputation of institutions. It is critical that its funding should be managed on a sustainable basis if we are to retain our place in the future.

The Higher Education Policy Institute was established in 2002 to shape the higher education policy debate through evidence. We are UK-wide, independent and non-partisan. We are funded by organisations and universities that wish to see a vibrant higher education debate as well as through our own events.