WEEKEND READING: We have spent thirty years asking the wrong people to fund universities. It is time for a new social contract

Join HEPI and Unite Students for a webinar on Wednesday 24 June 2026, from 11am to 12pm, marking the launch of the fifth annual Unite Students’ Applicant Index 2026. Drawing on one of the sector’s most comprehensive surveys of university applicants, the session will explore new insights into prospective students’ finances, wellbeing, resilience, learning, employment and preparedness for university, helping institutions understand what to expect from the next cohort arriving this autumn. Register now.

This blog was kindly authored by Professor Jagannadha Pawan Tamvada, Kingston University London.

The post-war settlement that shaped modern British higher education was based on an idea, made explicit by the Robbins Report 1963, that access to university should be determined by ability, not means, and the state would fund it because an educated population and a flourishing research base were public goods. As the benefits of knowledge creation at universities accrued to society across generations and communities, the onus was on the state to fund it.

However, over the past thirty years, we have quietly abandoned that principle. This shift began with the Dearing Report in 1997, which introduced tuition fees and justified them on the basis of the graduate earnings premium. This has led to a dramatic decline in public funding for universities, and nearly half of the universities are projected to be in deficit in 2025-26.

Graduates do earn more and benefit from their education. But they are not the primary or sole beneficiaries of the research conducted or of the universities’ civic mission, which provides broad, intergenerational benefits. And as research is a core institutional function, not an optional activity that universities can suspend, the reduction in public funding has created a critical structural problem: universities must either cross-subsidise research with teaching income or face a diminished civic role.

This funding model is fundamentally flawed and has undermined the very purpose for which universities were built. It underfunds research and shifts the costs of universities’ #mission of advancing public benefit onto current students. The injustice falls most heavily on those the system was supposedly designed to help, such as students from lower-income and underrepresented backgrounds. Universities that have built distinctive missions around social mobility, whose students are disproportionately first-generation and from lower-income households, carry the greatest gap between the students they serve and the fees those students can reasonably be asked to bear. For these least-advantaged students in the system to cross-subsidise the public benefit universities advance is a fiscal and moral inversion that the sector has not fully recognised.

Other countries have taken a different approach. Germany and Denmark have maintained near-zero tuition, recognising that the social return on higher education, including the research it produces, is too broadly distributed to be charged to those who happen to be enrolled. This policy choice is rooted in the same intergenerational logic that underpinned the establishment of the MRC Laboratory of Molecular Biology in Cambridge, the publicly funded institution whose curiosity-driven research produced 12 Nobel Prizes and over £700 million in commercial returns. The contrast with today’s Britain is stark: public sources fund only 23% of tertiary education in the UK, compared with an OECD average of 68%.

Further amplifying the financial crisis is a legitimacy crisis that cannot be addressed by marketing campaigns. Junior positions in law, finance, media, and professional services are contracting as AI-assisted productivity reduces the need for junior human work. Graduate hiring across the UK fell 8% in 2024–25, and entry-level roles requiring a degree have dropped by two-thirds since ChatGPT’s launch in 2022. As graduates enter a labour market reshaped by artificial intelligence, students who want to learn to code or research a complex topic can now access tools that accelerate self-directed learning in ways that were not possible five years ago.

These two crises facing the sector reinforce each other. Universities facing structural deficits cannot invest in the transformation that the AI disruption demands. And institutions that fail to transform will face an accelerating softening of demand, exacerbating their deficits. The assumption underlying the sector’s financial models is that students will keep coming in stable or growing numbers because a degree is the most reliable path to a good life. But that assumption is being increasingly contested, likely impacting future demand. Universities that respond by cutting costs and doing more of the same at lower cost risk accelerating their own decline.

There is a compelling need now for a new compact that involves all parties.

The case for restoring meaningful public investment in research and the civic mission is, on the intergenerational argument alone, philosophically justified. The state must consistently apply the principle that research conducted in universities generates returns that are too diffuse and broadly distributed, and of too long a horizon, to be funded by individuals or institutions acting alone. That means ring-fenced public funding for research and civic mission, distributed across the sector rather than concentrated in already well-resourced institutions, with specific support for universities to accelerate social outcomes, economic contributions, and impact on communities beyond the campus.

On the universities’ side, there is a need for a new commitment to become institutions that not only create and transmit knowledge but also enable staff and students to solve real problems, build new ventures, and contribute to business and society through them. This means building structured partnerships with businesses and civic organisations that translate knowledge into impact while fostering human networks and mentorship relationships that AI cannot replicate.

The economic model is already proven across the Atlantic. When Stanford took equity in Google in 1998, it ensured that publicly nurtured innovation generated a significant return that funded the next generation of discovery. Stanford sold its stake in 2004–05. Of the total realised gain, of $336 million, one-third went directly to the inventors and researchers whose publicly funded work had made Google possible, and two-thirds into university research and fellowship funds. MIT has operated on the same logic for decades, aligning incentives to activate entrepreneurial energy on campuses. British universities have similar research excellence, intellectual property, talented students, and civic trust, but need institutional frameworks and incentive structures to fully capitalise on these strengths.

The compact will need to include businesses and entrepreneurs who are the ultimate beneficiaries of the knowledge, talent, and innovation that universities produce. In the United States, successful founders and companies return capital, mentorship, and networks to the institutions that enabled them as co-investment in the next generation of the same ecosystem. In Britain, that relationship needs to be built.

The businesses and entrepreneurs who have benefited from publicly funded research and university-trained talent have a reciprocal responsibility in sustaining the conditions that produced them. This includes co-investing in university spinouts, providing mentorship and market access for student and faculty ventures, and viewing universities as partners in the innovation economy rather than solely as recruitment sources. And if the state matches pound-for-pound any endowment contribution by a business or entrepreneur to university research funds, it will create an incentive for British philanthropic culture in higher education that the US has built over decades.

Nearly half of the universities are projected to be in deficit because of three decades of decisions that treated social institutions as businesses, while simultaneously reducing public funding that makes them viable. The state, which carries the greatest obligation to sustain universities, transferred it to those with the least capacity to bear it. If Britain still believes in the world-class public good it built, it must now build a new social contract to sustain it.