National power generators

Here's a fact about higher education north of the border that you may not know: Scotland has just 0.1 per cent of the world's population, but its HE sector produces nearly 1 per cent of the world's research.

It's an impressive statistic, but before any Caledonian self-congratulation begins, here are more some sobering facts. Last year, the growth rate of the Scottish economy was a third less than that of the rest of the UK. In some areas of its west coast, life expectancy among males is below 60 years - behind that of Iran, North Korea and Gaza.

So what does the former have to do with the latter? Well, the Scottish National Party Government that came to power in 2007 is seeking independence - and to achieve that it has to prove that separation from the UK will bring tangible benefits for the nation.

It has set a goal of 2011 for matching the growth rate of the UK and 2017 for meeting that of the small but prosperous nations in the so-called Arc of Prosperity, which stretches across northern Europe from Ireland to Finland through the other Scandinavian nations. It is also in this context that it is confronting the major challenges faced by Scottish higher education.

Like all sectors, higher education, through Universities Scotland, made its bid for a share of public spending as part of the triennial Scottish Budget Spending Review, which took place in the wake of the SNP's narrow victory in the May 2007 Scottish Parliament elections.

Universities Scotland presented a fully costed package that would have seen spending on higher education rise by £168 million over three years. What it received - £30 million - was so far from what it had asked for that, according to a source close to the process, there was "genuine shock" among Universities Scotland representatives when they heard the news.

The subsequent events have ramifications, not just for the future shape of Scottish higher education, but also for that of the UK.

In response to the furore surrounding the spending announcement, the Scottish Government promised that it would find some cash from underspent budgets. More significantly for the long-term shape of the sector, the Government set up the Joint Future Thinking Taskforce on Universities (see box, page 34).

At the heart of the group's remit was the question of how Scotland's world-class universities could contribute to raising the nation's less-than-world-class economic performance. Universities that might be great at producing blue-skies research would be asked what they were doing to justify more taxpayers' money going to them rather than into, say, schools, hospitals and roads.

This could, of course, result in a shift in research funding priorities that would put Scotland on a different path from the rest of the UK. And as for funding more generally, with the prospect of the cap on tuition fees being raised in England, will the Scottish Government's commitment to funding higher education from the public purse mean the emergence of a two-tier sector - with institutions north of the border becoming the poor relations of their English counterparts?

Even before the task force reported last month, Fiona Hyslop, Scotland's Education Secretary, had signalled the direction in which she wanted to steer the sector. In a letter to the Scottish Funding Council in January, she wrote that her priorities for universities were "a modest real-terms increase in quality research grant" but "a significant increase in knowledge transfer funding". She added that, "in future, I would wish you to consider whether the metrics are sufficiently weighted towards applied research".

The crucial issue, she told Times Higher Education, is how Scotland translates the high levels of research and development that take place within its universities into the economy.

"That connection between universities and the economy is central. Scotland has big challenges - our growth rate and our productivity lag behind that of the United Kingdom (as a whole). We've got to exploit our comparative advantages and not be complacent in any area. As far as universities are concerned, we are world-class performers and we want to maintain that position.

"I think the relationship between universities and the Government had grown complacent before the new Government came in - and that's what I wanted to change.

"Making the case for resources for universities means persuading not just the Government but the public as well about the role and responsibilities of universities and their increasing importance for our economy in five, ten, 20 years," says Hyslop.

The Education Secretary makes no bones about the fact that Scotland's post-1992 universities have a key role in helping to boost the nation's economy. "The newer universities have areas of applied research that we need to pursue."

That message seems already to have got through to Nicholas Terry, the secretary and vice-principal (planning and resources) of the post-92 University of Abertay Dundee.

He says the Scottish Government wants universities to be more responsive to political guidance. "It's about the suspicion of universities being not bad places, but feather-bedded places. There are some legitimate questions about whether there are things that universities are currently doing that maybe they should not be doing.

"When I was at the University of Edinburgh, I recall being told it was my job to ensure that I handed over the institution in roughly the same state as I found it, and I was to do nothing that would disturb that. I found that, on the one hand, a very reassuring, almost flattering thing to be given to do, but, on the other, a breathtakingly complacent and arrogant mindset to have.

"I do believe that is the mindset of Edinburgh and other institutions, and they have lots of reasons for believing (why it should remain so).

"We shouldn't criticise them for that but (rather) ask: 'What can you do with that three or four hundred years of excellence that will contribute to Scotland's economic development? What are the things you are currently doing that you could change?'"

Terry admits to having concerns about the level of resources for research in Scottish higher education. The Scottish Government has said that there will be no research-free universities in Scotland, he notes. "But does that mean that the research we undertake will be of the same quality (as today) and will it be internationally competitive?"

"That is, perhaps, the question that the Scottish Government needs to consider a little more fully, because even today Edinburgh and St Andrews, which are in research terms the two most successful institutions, don't compare favourably with Imperial College London or Oxbridge.

"I think there is a danger that this gap - which exists at the moment and at present is considered to be relatively narrow - will open up simply because there will be less money to go around in Scotland," Terry observes.

If the Scottish Government spreads research funding around the sector, as it seems to want to do, where will this leave the research-intensive universities that have given the nation its enviable record?

Are they nervous about the post-92s encroaching on their turf because the latter are more in tune with the Scottish Government's thinking? Not at all, according to Sir Tim O'Shea, the principal of Edinburgh, who was also a member of the task force.

He is confident that his institution - a member of the Russell Group of research-intensive universities - is already contributing to the Scottish economy and that this fits in with the close relationship there has always been in Scotland between government and higher education.

"The thing that gives me comfort is that, if you look at the (Government's) five top economic goals, they all mesh nicely and align with what universities would want to do anyway. Do we want a nation that's smarter? Yes. Do we want economic development? Yes. Do we want to engage with the health service? Yes."

O'Shea argues that at the heart of Scottish higher education must be excellence in research and that, although some of it may not be instantly economically applicable, a long-term approach is needed.

"Scotland has a very successful university system, and one of the reasons we have that system is that institutions are autonomous, coupled with the dual-funding model, which is transparent and based on excellence. That has been an enormous policy success."

He points to Scotland's pioneering research pools - in which departments from different institutions across the country share resources to bid as a group for research funding - as an example of how a small nation can compete globally.

"To atone for one of the things I did in a past life - I must have been awful - I served as pro vice-chancellor at the federal University of London and one of my jobs was to get research co-operation between the colleges. Could you get co-operation? No."

"So there are clear differences between Scotland and England and some aren't new - but some of them are widening," says O'Shea.

The elephant in the room, though, is the prospect of the cap on fees being lifted in England. If this were to happen, institutions in England would have access to more funds than those available to universities in Scotland, where the SNP has ruled out any form of user contribution.

Christine Hallett, the principal of the University of Stirling, is one of those who argues that Scottish higher education needs to be concerned about the impact that lifting the cap on tuition fees will have. "We have a challenge. There are only four possible sources of support - the state, directly from users, business and philanthropic support. At present, there is an agreement that end-users shouldn't be contributors.

"If you look at our position internationally, we are bottom of the second quartile when it comes to investment in higher education. That suggests to me that there is headroom when it comes to (public-sector) funding if you are serious about the contribution of universities to the economy and society.

"Other countries are putting a greater amount of their public spending into higher education", she adds, "and have much higher participation rates. Take somewhere like Finland: we're talking somewhere about 70 per cent. A country has a choice: is that the model you want to have, of a really highly skilled workforce? That is funded with a greater proportion of public money.

"Going forward, there is potential for a gap that would affect research and the attractiveness of the salaries we would be able to pay," says Hallett.

Such a squeeze could also mean that it may be time for Scotland to look carefully at its cherished four-year degree, she adds.

"There is a great affection in many parts of Scotland for the four-year degree, and generations of Scots have benefited from the relative breadth that has been encompassed within that. But resources are tight and that's inevitably an area that people will look at."

Andrew Cubie, whose report recommended the implementation of the Scottish graduate endowment (a £2,000 fee paid on graduation to provide bursaries for poor students, which was scrapped last year by the SNP Government), is now chairman of Napier University's Court, or governing body. He believes the task force was a missed opportunity to look at the whole issue of higher education funding.

"There needs to be a comprehensive review of the funding of higher education institutions because the position in Scotland is that, not having the advantage of either the basic fee or the top-up fee, the differential in funding from England is getting larger."

He argues that the Scottish Government needs to look at a range of funding options to ensure that the sector remains competitive internationally.

"I'm in my early sixties and have been banging around in civic society for the past 40 years, and we have 20 per cent of our fellow countrymen still functionally illiterate.

"We have to address that problem, and those of us in higher education can't simply make demands. So we have to draw those resources from (a variety of funders within) our mixed economy."

"According to the best figure we have, the contribution from the public purse to higher education in the UK and Scotland is about 0.8 per cent. The figure that applies in the so-called Arc of Prosperity is about 1.6-1.7 per cent. The public spend in the US is 1.2 per cent before you get into all the additional endowments, alumni support and the like.

"Short of the Government saying that it is going to carve out from budgets the levels of money that are required to be competitive, I am very concerned.

"Free education is very alluring - in a society that can afford it. But our society in Scotland is one where the public sector dominates more than elsewhere in the UK. If you have a vibrant economy, that allows you to pump money into higher education through general taxation, but it seems we can't afford (to do) that," Cubie says.

Hyslop is naturally dismissive of the idea that Scotland will emerge at the bottom of a two-tier UK higher education sector. She questions whether the Treasury, in the current economic climate, will be able to afford the higher student loans required to get the ball rolling and allow universities to raise fees.

"We live in interesting times when it comes to public investment," she says. "The stretching of the public finances in the current climate, I think, puts added emphasis on the question of whether the Treasury has the resources to underwrite any increase in fees."

The issue of top-up fees is dismissed in forceful terms by O'Shea, who argues that the current economic climate will make it difficult for the Treasury to come up with the upfront funding needed for English universities to raise the cap. "From my point of view, there is a lot of guff talked about top-up fees - follow the money back to the Treasury and see what's actually happening. If somebody from outside the English tax system were to come along with a big bag of money for fees, then you're talking."

The interim report from the Joint Future Thinking Taskforce on Universities is out for consultation now, and it remains to be seen how much of its detail will be translated into policy.

What is clear is that the current Scottish Government wants a higher education system that is more closely geared towards achieving its economic goals - goals that will implicitly make the case for independence. Whether Scotland remains part of the UK in the longer term is something that will of course be decided at the ballot box.

What might higher English fees mean for Scotland?

The issue of England's raising the cap on tuition fees is a vexed one for the Scots.

Although some argue that Scotland faces a struggle to maintain its record of research excellence with funding solely from the public purse, others say the issue is a red herring.

But while the optimists may be proved right, what would happen if the gloomier predictions came true? Consider a couple of hypothetical scenarios.

If annual fees rose to £5,000 across the board, institutions in England would get an extra £1,825 per student.

Institutions would probably be expected to provide more support for less well-off students through bursaries, and these could account for 25 per cent of the additional fee income. This would mean that the extra cash per student would amount to about £1,370, assuming that the Higher Education Funding Council for England's funding per full-time equivalent student was maintained at current levels.

North of the border, where there are some 105,000 full-time undergraduates, the Scottish Government would have to find an extra £137 million to maintain parity with England.

And if the fee per full-time undergraduate in England were to be raised to £7,000, the Scottish Government would need to find £300 million to maintain parity of funding with England.

The Scottish government's strategy for universities

The Joint Future Thinking Taskforce on Universities published its interim report last month.

The document begins by painting a picture of a successful and vibrant Scottish higher education sector, pointing out, for example, that per head of population the nation's research is cited more often than that of the US or Germany.

But it is clear from the report that the Scottish National Party Government wants a closer relationship between higher education and society. The Government believes universities must align themselves much more closely to its goals for Scotland's "national outcomes" and "strategic objectives".

The outcomes and objectives, which appeared in the SNP's election manifesto, together amount to ambitions for a more prosperous country in which public services provide better value for money.

To help achieve this, universities have been offered a "lighter touch" regulatory regime from the Scottish Funding Council and the promise of additional funding if they can demonstrate that they are developing more links with business and contributing to the economy as a whole.

The task force report states that the Scottish Government's role will change so as to be more focused on outcomes that will deliver its strategic objectives. These in turn will buttress the case for more funding from the public purse. This is described as a "something for something" deal in the report.

The task force also proposes creating two funds for Scottish higher education - a general fund and a horizons fund.

Although the SFC will administer both, the general fund will distribute money through the more orthodox means of formulas, while the horizons fund will target projects in individual institutions that the Government believes will advance its aims.