Why the UK will miss the R&D targets if we cut funding for students

Two days before the Budget, the Higher Education Policy Institute is publishing a new report on cross-subsidies between teaching and research in universities.

From T to R revisited: Cross-subsidies from teaching to research after Augar and the 2.4% R&D target by Nick Hillman (HEPI Report 127) shows:

• University research is underfunded against its true costs – the latest official figures show a gap amounting to £4.3 billion across the UK and £3.7 billion in England and Northern Ireland.
• The shortfall in research funding has been partially filled by cross-subsidies from international students’ fees – each international student in the UK pays an average of £5,100 more than it costs to educate them. 
• Depending on how the Government opt to respond to the Augar review’s recommendations on tuition fees, then the shortfall on teaching home undergraduates could increase by between £0.7 billion and £2.3 billion above its current level of £0.2 billion. 
• A larger gap will need to be covered by increases in productivity, a deterioration in the student experience or redirecting the cross-subsidy arising from international student fee income.
• If international student fees are used to fill in – or merely reduce – a bigger gap in the funding of home students, they will no longer be available to cross-subsidise research, meaning the annual research deficit in England and Northern Ireland alone could rise to £4.9 billion. Teaching and research could suffer.
• This will make it very challenging to reach the Government’s target of spending 2.4% of GDP on R&D by 2027 and more afterwards, especially when combined with other potential obstacles.
• The splitting of teaching from research in Whitehall, with a different Minister and Department for each one, could hamper a joined-up approach to the different activities undertaken by higher education institutions. 
• An increase in overseas students could relieve some of the financial pressures but is not inevitable, given international competition, changing geopolitics and the Home Office’s general approach in recent years to international students. 
• If policymakers want to hold down – or reduce – tuition fees, preside over further improvements to the student experience and ensure much greater R&D spending, they are likely to need to spend more than planned. 

Nick Hillman, the Director of HEPI and the author of the report, said:

If the UK university sector is to continue thriving, then it is crucial that the Chancellor recognises the interdependencies between teaching and research in the budget and subsequent spending review.

Universities roughly break even on teaching home students but make a big loss on research. They fill in part of that gap from the surplus on teaching international students. But they now face a looming large loss on teaching home students, for example because of tweaks to tuition fees in England. If that happens, they will have to use international student fees to subsidise home students and there will be less money for covering gaps in research funding.

We need to redouble our efforts to ensure a better understanding of the interdependencies between teaching and research in the face of the latest Whitehall changes, which mean we now have one Minister for Universities and a different Minister for Science.’

In a Foreword to the report, Professor Robert Van de Noort, the Vice-Chancellor of the University of Reading, says:

The debate about value for money in higher education reflects an unclear understanding of how and why universities do what they do. The issue of income cross-flows is central to this debate. As this report shows, the defining features of universities are interdependent. In particular, university research loses so much money that it cannot currently happen at scale without substantial cross-flows of income from teaching students, generally international students.

This report focuses above all on the additional challenges that would arise in England if the Westminster Government opted to continue holding down the amount of funding per student (or worse) in the aftermath of the Augar report. In that scenario, achieving the planned increases in expenditure on research and development (R&D) would be very hard to achieve. …

When the Augar report plumped for a fee cap of £7,500, this was derived by omitting the margin for sustainability and investment, as calculated by KPMG for the Augar panel, from the total costs. Yet it is this margin for sustainability and investment that gives universities the financial room for investments in new research and taught programmes. For example, following Augar’s argument to the letter, no university will be able to invest in new programmes such as artificial intelligence (AI) and machine learning. This seems to go against the Government’s wish to strengthen research in these and other areas.’

Notes for Editors

1. The Higher Education Policy Institute was established in 2002 to help shape the higher education debate with evidence. It is the UK’s only independent think tank devoted to higher education. HEPI is a non-partisan charity funded by higher education institutions and other organisations that wish to see a vibrant policy debate.
2. HEPI’s previous report on cross-subsidies, for which the author won Wonkhe’s ‘Wonk to Watch Award, remains available: How much is too much? Cross-subsidies from teaching to research in British Universities by Vicky Olive (HEPI Report 100, November 2017).
3. For a list of forthcoming HEPI events, see https://www.hepi.ac.uk/category/events/. To get the latest news and blogs from HEPI, sign up on our homepage at www.hepi.ac.uk.