Cold wind blows on growth hope

The looming recession, formally acknowledged by ministers for the first time this week, could scupper plans to raise higher education funding, economists and vice-chancellors have warned.

The government is likely to struggle to fulfil its promise of more cash in years two and three (2000-01 and 2001-02) of the comprehensive spending review if the recession bites into jobs.

Although ministers claimed that the global economic downturn would not affect their spending pledges for health and education, experts suggested that the prospects of a better deal for higher education were fading.

They said the likely impact of a recession - job losses leading to spiralling social security costs and dwindling tax revenues - had not yet been applied to government public spending forecasts.

This means education secretary David Blunkett may be forced to revise the prediction he made at last week's Labour Party conference that there would be more money for higher education in years two and three of the CSR.

Steve Chicken, chairman of the Universities Finance Directors Group, warned: "If the government sees increasing outgoings in social security payments and less tax, it must put its CSR plans under threat. There is no escaping the fact that in a recession higher education, like everyone else, is likely to catch a cold."

Nick Barr, senior economics lecturer at the London School of Economics, said that government forecasts have ignored any recession. "If we end up with a world recession then no one's forecasts will stand up," he said.

John Tarrant, vice-chancellor of Huddersfield University and chairman of the Committee of Vice-Chancellors and Principals resources and management group, said there was a danger that "less optimistic forecasts" for the CSR would dash hopes for more money for teaching.

"The CSR is predicated on assumptions about economic growth. If those prove wrong, spending plans will have to be modified and we will be left with insufficient money to invest in the teaching infrastructure," he said.

John Bull, vice-chancellor of Plymouth University and CVCP treasurer, said universities could find demand for courses increasing as unemployment rises.

But universities relying increasingly on investment income could suffer - even though as registered charities bound by the Trustees Act, they are prevented from speculating in risky ventures, such as hedge funds.

This should stop them being hit by the kind of financial catastrophe racking the United States. Harvard University has revealed it had lost $1.3 billion this quarter on the stock market, while Brown University and the University of Iowa confirmed that a hedge fund they had invested in had lost $1.3 billion since August.

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