Can UK universities find the high road to economic growth?

When a splinter group of scholars left Oxford in 1209 to found the University of Cambridge, it is unlikely that their book-laden journey along Medieval England’s muddy byways was a fast one. More than 800 years later, however, it is arguable that things haven’t improved a great deal. 

Both Oxford and Cambridge have inconveniently located train stations; plans to build them more centrally were vetoed in early examples of what would now be called Nimbyism (although Oxford dons appear to have been equally concerned about the impact of easy London access on their students’ “morality”). And even once scholars complete the lengthy walk from their colleges, it still takes them an inordinately long time to reach “the other place” just 66 miles away as the crow flies: two-and-a-half hours to be exact, including a Tube trip between London’s King’s Cross and Paddington stations. Those who prefer to go by car, via the back roads of Milton Keynes and Bedford, are unlikely to arrive much earlier.

Unsurprisingly, therefore, improving connectivity along this “broken” side of the “golden triangle” of Oxford, Cambridge and London has long been a priority for governments, with the ultimate aim of creating a more coherent research and innovation area capable of competing globally, with comparisons to Silicon Valley seemingly mandatory.

The issue was revived again last month as part of chancellor Rachel Reeves’ increasingly desperate search for solutions to the UK’s longstanding problems with flatlining productivity and economic growth.

“This is the government’s modern industrial strategy in action,” Reeves said in a speech in Oxfordshire. “With central government, local leaders and business working together, the Oxford and Cambridge growth corridor could add up to £78 billion to the UK economy by 2035, driving investment, innovation and growth.”

For a government keen on buzzwords, talk of growth has become inescapable since last July’s election victory. For universities – which have been told explicitly by education secretary Bridget Phillipson that future funding asks are conditional on contributing more to growth – the quest has become existential.

But while higher education can plausibly lay claim to be good for growth in any number of ways, its most direct contribution – the billions spent on research and innovation each year – has done little so far to kickstart any sort of recovery, despite years of political consensus that it is one of the UK’s best bets.

And many see an inherent contradiction in universities being asked to do more at a time when jobs, courses and research are being slashed – moves that, in themselves, have an economic impact, particularly locally.

If universities are to truly help the country’s economy grow, some think a change of approach is needed, one that uses scarce resources to bet big on pre-existing areas of strength. But where does that leave so-called blue-sky projects, important for reasons not yet known? And what does channelling money into Oxford and Cambridge mean for an agenda that was once called “levelling up”?

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If universities have traditionally struggled to show their full economic worth to policymakers, they now have two potentially powerful allies at the heart of the Treasury who can make the case better than most.

London School of Economics academics John Van Reenan and Anna Valero, authors of an influential paper on the links between universities and breakthrough innovations, have been loaned to the chancellor as economic advisers, with Van Reenan occupying the office next door to Reeves.

Their influence can be seen in recent announcements, according to Rui Costa, a research fellow at the LSE’s Centre for Economic Performance, where both worked before their secondment. “They showed that a concentration of good universities in cities with a certain density of human capital is a particularly important combination for growth,” he said, adding that the biggest prize would be to unlock private investment in research, which has long been one of the key challenges the UK has faced.

Former prime minister Boris Johnson’s much-trumpeted levelling-up agenda drew attention to the high proportion of UK research funding that is currently spent in the south-east (though others pointed out that funding per head is much less unevenly spread across the regions), prompting talk of a need for an “R&D place strategy” to ensure a wider geographical distribution of research funding. Observers now question whether any of that will happen.

There is a trade-off, Costa conceded, in spending limited public money in places already better funded than everywhere else. “But if you need economic growth, you need to somehow get to anything that can even glance at competing with the US. You can only do that by building on what you already have,” he said.

For Andy Westwood, professor of government practice at the University of Manchester, Labour’s initial announcements were about sending a signal about being pro-growth by getting long-stalled infrastructure projects moving.

“We shouldn’t get too carried away or disheartened that it is a south-east-centric agenda,” said Westwood, a former Labour adviser. “These just happen to be the signals they want to send now. It is the beginning of a story rather than the end.”

One of Labour’s other sticky problems is that the UK’s secondary cities have always underperformed compared with those in similar countries, and the government’s coming industrial strategy is expected to provide more detail on how universities will be expected to drive regional growth in less prosperous areas.

Westwood agreed, however, that the government had signalled it wants to follow a different, more targeted approach to research.

“For the last two to three decades, we’ve had a supply-side model that has driven a big expansion in the number of graduates, universities and staff doing research,” he said. “It’s not been universities’ job to pick and choose, to really think about how any of these things are utilised. Whether it’s a new technology or new knowledge, there are few demand-side incentives in this model.”

He said the current government’s prioritisation of certain industrial sectors is “much more hands-on. It’s about utilising skills and R&D, asking: ‘Where are my levers and how can I pull them?’”

This philosophy, according to Westwood, might explain why, while the overall research budget is increasing, there has been a decline in the real-terms value of the core research budget including the quality-related block grants that universities can spend on their own research priorities.

“There’s an important distinction between the types of things universities do – what the core budget supports – and the kinds of things that drive growth. They are not always the same thing, particularly in the short term,” he said.

Sector leaders have recently mounted a renewed defence of QR amid fears the balance has already shifted too far in favour of project grants. QR helps “scatter the seeds for things that will be capable of capturing competitive grant funding in the future”, argued Vivienne Stern, chief executive of Universities UK. “We can’t starve the pipeline of the things that are going to be tomorrow’s economic opportunity.”

Labour seems to prefer to retain the ability to direct funding into specific growth-promoting schemes, such as creating more research clusters and innovation zones or investing in defence, health and place-based net-zero projects. But Westwood points out that if universities evolve accordingly, they stand to win a lot of funding, with £12 billion of the annual £20 billion distributed via competitive grants – roughly the same amount as the sector earns from international students.

“For universities, it is not just about how you drive efficiencies in the research you currently do, it is also about how you tool up your capacity to deliver some of this other stuff,” he said.

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Most fear, however, that the funding crisis will only be bad for universities’ role in fulfilling the “growth mission” (which also puts a big emphasis on making the UK an “AI superpower”). Rosalind Gill, head of policy and engagement at the National Centre for Universities and Business, said financial constraints are making it harder for universities to take a strategic approach to driving growth. “But we need [them to play] that role more than ever,” added Gill, whose research has shown that levels of university and business collaboration have gone into decline in recent years. “For that to happen, we need intervention from government to put universities back on a sustainable footing.”

Stern agrees that “if you want the sector to deliver more, you can’t expect it to do that whilst the funding is steadily chipped away”. And she suggests that the government needs to address the longstanding issue of inadequate cost-recovery rates in research funding and dwindling international fee income, which has long been used to cross-subsidise research.

There is more universities could be doing as well, Stern said, citing examples such as Midlands Mindforge, a university-led initiative that aims to make it easier for investors to understand new technologies and see where their applications might be.

Gill agrees that universities need a renewed focus on translating research into real-world impact. But their success may depend on whether they can find new ways to evidence the difference they are already making.

“Telling this story isn’t easy,” she said. “The ways in which we evaluate it are quite fragmented. We have graduate outcomes survey data, various UKRI [UK Research and Innovation] assessments of different schemes, but it is quite unusual to see a full holistic analysis. And figures don’t really bring to life the richness of what we are talking about.”

Gavan Conlon, co-head of the education and labour markets team at the consultancy London Economics – a firm that has made its name carrying out economic impact assessments for universities and the sector – said when it comes to growth, it was arguable that universities were already keeping the UK out of a “permanent recession”.

“It is difficult because we don’t witness the counterfactual – if a university didn’t exist,” Conlon said. “The evidence is there, but it is always going to be difficult to nail down. Some of the impacts of universities from an economic sense are obscured or potentially invisible.”

So the right question might not be how a country with such a high-performing university research sector can still be languishing so badly economically. “Ultimately, we should ask ourselves where we would be if we didn’t have universities,” Conlon said. “The answer is that we would be in a significantly worse place in terms of economic growth.”

tom.williams@timeshighereducation.com