Responding to today’s emergency Budget, Universities UK President Professor Steve Smith urged the government not to deal a ‘double blow’ to universities’ capacity to contribute to economic recovery.

The Chancellor announced that ‘unprotected’ departmental spending (which would include higher education funding) could be reduced by as much as 25% in real terms by 2014-15. The increase in VAT to 20% (effective from 4 January 2011) will result in an extra tax burden for universities which could be in excess of £200 million per year.

Professor Steve Smith said: “Universities UK recognises the need to rein in public spending in order to tackle the deficit, but recovery from the economic crisis depends both on fiscal responsibility and growth. The Chancellor acknowledged this in his speech. Universities are uniquely placed among public services to contribute to the future strength of the UK’s economy.

“Higher education has the ability to help UK Plc meet the future needs of the economy by providing the workforce with the high-level skills it will need to succeed in a global, knowledge-based economy.

“Our concern is that universities will suffer a 'double-whammy' of tax increases and spending cuts. A VAT increase means an increase in the cost-base of universities. It also risks derailing the efforts of university leaders to drive cost-saving collaboration projects. If these increased tax costs are combined with future funding cuts, this could represent a significant squeeze on our capacity to deliver the numbers of graduates and the quality of research that the UK economy needs.

“The government has confirmed that it plans to eliminate the structural current deficit by 2015. It is helpful that the government has been clear on this point and on the implications for departmental spending. However, projections show that the funds available for non-protected departments could fall by as much as 25% in real terms over the course of this parliament. The Government recognises the pressure this might have on education so we hope they recognise the specific funding pressure on universities.

“The higher education and science budget faces being cut by £3.6billion. Cuts of that size make it even more important that urgent consideration is given to the recommendations of the Browne Review of higher education funding and student finance. The government can tackle major issues - such as the size of the student loans subsidy – without undermining the ability of universities to deliver front-line services. But it must ensure that its policies work together to ensure we maintain our world-leading higher education system.”