With an emergency budget and an expectedly difficult comprehensive spending review looming on the horizon, Universities UK is preparing to make a strong case for why more investment in universities is needed to deliver on the government’s economic policy objectives. Our
report on the economic role of universities outlines some key reasons, touching upon how the higher education sector can help overcome the systemic weaknesses that are holding UK growth back.
Of all the challenges facing our economy at the moment, the UK’s dismal productivity growth record since the 2008 global recession (see figure below) has clearly emerged as the number-one concern for the incoming government, and with good reason. If productivity remains stubbornly low, then clearly our economy is not investing enough in its workforce and infrastructure, and is not innovating enough; the government has an essential role to play in turning this around.
Importantly, this focus on productivity growth can only be good news for higher education: as we argue in our report, universities have much to show for their role in helping make the economy more productive. Their activities have a huge impact on that element of productivity growth which is not accounted for by changes in the quantity of capital and labour (the so-called total or multi-factor productivity), but according to OECD data was responsible for an average 57% of UK labour productivity gains between 1995 and 2013 – here are two of the ways they do this:
Source: OECD, UUK calculations
Reversing the UK’s productivity fall is a very complex issue with neither quick nor universal fixes. Yet, if the government recognises the importance of boosting innovation and strengthening human capital for productivity growth, then making a bold investment in universities has to be a key step along the way to a more productive economy. The spending constraints implied by the government’s ambitious deficit reduction target don’t weaken the rationale for doing so. Rather, they strengthen it, as in a tight fiscal environment it makes even more sense for the government to prioritise spending that is highly productive – that is, spending that can expand the economy’s capacity to grow and help raise government revenues without tax increases, as is the case for investment in the higher education sector.