Universities Produce Talent. Economies Produce Returns.

Join the Policy Institute at King’s College London and HEPI on Tuesday 15 September, from 6.30pm to 7.45pm, at Bush House, London, for a free event exploring the future of higher education in England. Drawing on Professor Sir Chris Husbands’ report, New choices: Revisiting futures for higher education in England, the discussion will consider how financial pressures, generative AI, changing student expectations and declining public trust are reshaping the sector – and the choices universities and government need to make now to secure a sustainable future. Register here.

This blog was kindly authored by Professor Faten Ghosn and Professor Silke Paulmann, both of the University of Essex.

Economic growth has once again become Britain’s defining policy challenge. In his first speech as Prime Minister, Andy Burnham pledged to build ‘a new economic model’ through re-industrialising Britain, devolving power and reforming education to help more young people into work. That agenda inevitably raises questions about the skills needed to drive future prosperity and, crucially, whether the economy is creating opportunities that make full use of those skills.

Against this backdrop, in June, the Institute for Fiscal Studies’ (IFS) published its report on the lifetime returns to undergraduate degrees. Predictably, much of the debate has focused on whether university is still worth it. Yet by concentrating almost exclusively on the return to a degree, we risk missing a much bigger issue: whether Britain is creating an economy capable of making full use of the graduates its universities produce.

The IFS report does not reveal a single return to higher education. Returns vary considerably between subjects, institutions and individuals. Some graduates enjoy substantial lifetime earnings gains, while around one in four may not recover the financial costs of attending university. Those differences matter. But they also point to a deeper truth: the value of higher education cannot be understood by looking at universities alone.

The report measures the private financial returns to undergraduate study. That is an important measure of value, particularly for prospective students and policymakers. But it is not the whole story. Higher education delivers benefits that extend well beyond income. A landmark review published in The Lancet Public Health found that every additional year of education reduces adult mortality risk by almost 2 per cent, while UK research shows graduates are more likely to adopt healthier lifestyles and age more successfully. They are not simply private gains. Healthier populations reduce pressure on the NHS, remain economically active for longer, and participate more actively in civic life. The returns to higher education therefore extend beyond graduate salaries to the health, resilience and productivity of the wider economy.  

Britain’s debate about universities has become strangely one-sided. We scrutinise the supply of graduate skills – what universities teach, whether degrees pay, whether graduates are ‘work-ready’. Far less attention is paid to the demand side: whether Britain’s economy is creating enough high-skilled opportunities to make full use of the talent universities produce.

Graduate outcomes are co-produced. Universities develop knowledge, skills and capability; employers create jobs that utilise those capabilities; government shapes the conditions through industrial strategy, innovation policy, regional investment and support for business growth. The returns to higher education emerge from the interaction between all three.

Seen in this light, the IFS findings take on a different meaning. If some graduates struggle to realise strong economic returns, this may tell us something not only about the courses they studied, but also about the economy into which they graduated. Graduate salaries reflect labour market demand, regional economic performance, business investment and productivity growth. A degree cannot realise its full value if the economy fails to create opportunities that require graduate-level skills.

Yet, public debate often assumes precisely the opposite. Universities are routinely expected to justify themselves through the earnings of their graduates in a way that few other public institutions are. We do not judge hospitals solely by the future tax revenues of the patients they treat, nor transport infrastructure only by the salaries of those who use it. We recognise that these institutions create capabilities and opportunities whose benefits ripple through society and the economy. Universities should be understood in much the same way.

None of this absolves universities of responsibility. Students deserve clear information about employment prospects, and universities must continue improving teaching, embracing new technologies responsibly, strengthening links with employers and ensuring graduates leave with skills relevant to an AI-driven economy.

But employability is only half of the equation. The other half lies beyond the university campus. It depends on whether Britain is building an economy capable of absorbing and rewarding graduate talent through investment in innovation, research and development, technology adoption, entrepreneurship and regional economic growth. In a recent article, John Burn-Murdoch, highlighted that graduate wage premiums have remained resilient across countries including Canada, France, the Netherlands, Spain and the United States even as participation in higher education has expanded. Britain stands out not because its universities have become less effective, but because productivity growth has stalled and high-value job creation has lagged behind comparable economies.

Sir Chris Husbands’ recent HEPI debate paper argues that England now faces important strategic choices about the future of higher education. We agree. But those choices extend beyond the university sector itself. The future of higher education cannot be separated from the future of the economy it serves. Universities create capability. Government and business determine how much of that capability is realised. Britain’s challenge, therefore, is not simply to educate a highly skilled workforce. It is to build an economy that allows that workforce to flourish.